Abstract
Pricing and production games are studied in a vendor managed inventory system (VMI) where the supplier determines the quantity and the retailer determines the price. The role of revenue sharing in mitigating the double marginalisation in VMI is illustrated. The positive effect of information updates on the performance of VMI is also investigated. At the same time, the existence and uniqueness of Nash equilibrium in one period game, subgame perfect Nash equilibrium in a two-period game with perfect information in the second period and the myopic Nash equilibrium in finitely repeated games are also discussed. Numerical studies demonstrate the substantial economic value of revenue sharing and information updates.
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