Optimal pricing strategy in a coordinated supply chain

Abstract

The faster product development, market globalisation, and increased competition force companies to make coordinated and integrated decisions. Therefore, a coordinated supply chain becomes an increasingly important issue. The objective of this research is to quantify the value of the joint coordination and to derive the pricing and ordering strategy that achieves partial or maximal coordination of the supply chain under information sharing. We consider two stage supply chain models consisting of one distributor and one manufacturer with linear and concave production costs. Our analysis suggests that while the value of coordination through information sharing can be quite high, the information can be taken advantage of by the manufacturer. We also show that the larger the supply chain, the cheaper the optimal price inside the chain, and hence, expanding the supply chain by adding new distributors is beneficial to all members of the chain.