Supply chain coordination with competing suppliers under price-sensitive stochastic demand

Abstract

In this paper, we investigate a supply chain where two competing suppliers sell substitutable products through a common retailer who faces price-dependent stochastic demand. The retailer jointly decides the order quantity and the retail price for each product. Unlike most existing research assuming customer homogeneity, we divide the customers into two types: i) the price-sensitive type and ii) the brand-loyalty type, and investigate the issues of supply chain coordination. Our results show that neither buy-back contracts nor the buy-back related hybrid contracts (i.e., the hybrid buy-back and revenue-sharing contract and the hybrid buy-back and sales rebate contract) can achieve the coordination of such a supply chain. Furthermore, under buy-back contracts for the decentralized supply chain, we analyze the retailer's optimal retail price and order quantity when each supplier imposes a minimum order-quantity constraint. Our result shows that there exists a unique optimal decision for the retailer under some mild restrictions.