Pricing and effort decisions in a closed-loop supply chain under different channel power structures

Abstract

This paper aims to explore the influence of different channel power structures on the optimal decisions and performance of a closed-loop supply chain (CLSC) with price and effort dependent demand, to identify the most profitable channel power structure and to propose coordination strategy for the decentralized CLSC. Considering the demand expansion effectiveness of collection effort and sales effort, centralized and decentralized game theoretic models of a CLSC with one manufacturer and one retailer are built, to investigate optimal decisions of collection effort, sales effort and pricing under different channel power structures, namely manufacturer Stackelberg, vertical Nash and retailer Stackelberg. Through a systematic comparison and numerical analysis, the results show that with dominant power shifting from the manufacturer to the retailer, the retailer's profit always increases and the manufacturer may also benefit when the demand expansion effectiveness of collection effort is large enough. The symmetric channel power structure is the most favorable for both the CLSC and consumers when the demand expansion effectiveness of collection effort is relatively low; otherwise, the CLSC with dominant retailer is the most profitable. Moreover, the proposed low price promotion strategy can effectively enhance the performance of decentralized CLSC.