Optimal pricing and alliance strategy in a retailer-led supply chain with the return policy: A game-theoretic analysis

Abstract

Motivated by various observed real world practices, we study in this paper a joint pricing and alliance selection decision making problem in a retailer-led supply chain. We examine the case when: (i) a return policy is in place, and (ii) a potential new upstream supplier which provides a substitutable product is entering the market. We first develop a benchmark model for a basic situation in which only a dominant retailer and a supplier are present in the supply chain system. Then we propose four different alliance models for the case when a new supplier enters the system. Detailed solution schemes for the optimal pricing and alliance decisions are developed. We conduct a numerical analysis to present the application of our proposed procedures, and find that having the alliance strategy need not improve the supply chain performance. Finally, we report the sensitivity analysis findings to highlight the fact that the product cost and the return rate of the original supplier's product both significantly affect the optimal alliance strategy decisions.