Optimization and Decision of Supply Chain Considering Negative Spillover Effect and Service Competition

Abstract

Excellent service plays a vital role in the sustainability of enterprise and supply chains development in today’s increasingly fierce market competition. However, due to the inevitable spillover effect in the competitive network, enterprises’ initiative to improve the service level is reduced. From the perspective of negative spillover effect, optimization and decision-making in the competitive network of retailer-dominated supply chain are examined in this study. Considering four competitive situations in practical operation management, the corresponding double-layer compound nested Stackelberg game models are constructed, and the optimal equilibrium solutions are derived. Employing comprehensive comparison and analysis of the results, it is found that when the negative spillover effect of service increases, the optimal profit and service level of the leading supply chain or its retailers decrease, and the optimal retail price and overall optimal profit also gradually decline. For the leading supply chain, the centralized decision-making can achieve higher profits, and also more willing to improve the level of service. However, for the following supply chain, when the negative spillover effect of service is weak, the optimal service level under decentralized decision is higher, while when the spillover effect of service is strong, the optimal service level under integrated decision is higher. In addition, the supply chain-to-chain competition can bring negative incentives to the retailer that provides services, while for the rival that does not provide services, it can generate a certain free-riding effect that benefits them, and the effect is enhanced with the increase of competition.