Pricing Decision in a Two-Echelon Supply Chain with Competing Retailers Under Uncertain Environment

Hua Ke,Yong Wu,Hu Huang,Zhiyi Chen

doi:10.1186/s40467-017-0059-2

Hua Ke, Yong Wu + Show 2 more

Open Access

https://doi.org/10.1186/s40467-017-0059-2

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Abstract

This paper explores a supply chain pricing competition problem in a two-echelon supply chain with one manufacturer and two competing retailers. The manufacturing costs, sales costs, and market bases are all characterized as uncertain variables whose distributions are estimated by experts’ experienced data. In consideration of channel members’ different market powers, three decentralized game models are employed to explore the equilibrium behaviors in corresponding decision circumstances. How the channel members should choose their most profitable pricing strategies in face of uncertainties is derived from these models. Numerical experiments are conducted to examine the effects of power structures and parameters’ uncertain degrees on the pricing decisions of the members. The results show that the existence of dominant powers in the supply chain will increase the sales prices and reduce the profit of the whole supply chain. It is also found that the supply chain members may benefit from higher uncertain degrees of their own costs while the other supply chain members will gain less profits. Additionally, the results demonstrate that the uncertainty of the supply chain will make end consumers pay more. Some other interesting managerial highlights are also obtained in this paper.

Highlights

In this paper, we explore a pricing decision problem in a decentralized supply chain with competing retailers under uncertainty
The manufacturing costs, sales costs, and consumer demands were characterized as uncertain variables
Three decentralized models based on uncertainty theory and game theory were built to formulate the pricing decision problems

Summary

Introduction

We explore a pricing decision problem in a decentralized supply chain with competing retailers under uncertainty. In such supply chains, costs and demands may be subject to some inherent indeterministic factors, such as material cost changes, labor costs, technology improvements, and customer incomes. It is necessary to identify distributions of these parameters, which are essential for supply chain managers when they make decisions, e.g., choosing prices, determining production quantities, choosing ordering quantities, and adding investment. We can collect enough samples to estimate distributions of these parameters before we make decisions. The costs and demands for these new products are usually the lack of historical data, or we can collect enough data, but these data may not be applicable due to the dynamic environment.

Objectives

Conclusion