Pricing decisions for three-echelon supply chain with advertising and quality effort-dependent fuzzy demand

Abstract

Simultaneous influence of market power structure, advertising and quality efforts on the optimal pricing decisions and performance of a multi-echelon supply chain under uncertainty have received scant attention in the literature. We focus on this gap by examining a serial decentralised three-echelon supply chain consisting of a supplier, a manufacturer and a retailer. The uncertainty associated with customer demand, marginal production costs and effort costs is expressed as linguistic or fuzzy variables. We analyse centralised supply chain to obtain all benchmark parameters. We investigate four decentralised supply chain cases through fuzzy game theoretic approach. We compare among three Stackelberg games with various supply chain leaderships and a vertical Nash. Our key findings are as follows. First, the manufacturer puts least quality effort while retailer puts least advertising effort when they act as Stackelberg leader in a three-echelon supply chain. Second, supplier's per unit price is governed by the channel leadership in three-echelon supply chain while retail prices are less affected by the leadership. We investigate the impact of fuzzy degree of quality and advertising sensitivity on optimal profit distribution among agents. We present numerical analysis to illustrate the importance of the derived theoretical results and discuss additional managerial insights.