Supply chain coordination with multiple retailers and nonlinear production costs

Abstract

We consider coordination with multiple retailers when supplier's production costs are nonlinear. Microeconomics typically assumes increasing marginal production costs (i.e., convex production costs). The nonlinearity of the production costs introduces indirect dependence among the retailers, as the order quantity of one influences the cost of producing the others' lots. We consider a fixed retail price scenario, as well as price-dependent linear additive and iso-elastic demands. We explore these scenarios under wholesale-price-only contract, as well as revenue sharing contract.