Quality and pricing decisions in a two-echelon supply chain under multi-manufacturer competition

Abstract

In this paper, we consider the pricing and quality decisions of a single product in a two-echelon supply chain with multi-manufacturer and a single retailer. The manufacturers compete for the quality of the product and sell through a common retailer with different retail prices. The demand at the market place is dependent on both the retail price and product quality. A centralized model is developed as the benchmark case. A Stackelberg structure is assumed, where the retailer is the leader who decides the retail prices of different brands of the product produced by the manufacturers, and the manufacturers are follower who set the product quality under Cournot and Collusion policies. A special case is considered where these retail prices are the same. We compare the optimal results under two different policies, each with two pricing strategies (same and different). A numerical example demonstrates the developed models and shows that the same pricing strategy is the worst one from the supply chain’s point of view while different pricing strategy is occasionally gainful from consumer’s point of view.