Two-echelon supply chain models: Considering duopolistic retailers’ different competitive behaviors

Abstract

This paper considers the pricing and quantity decisions of a two-echelon system with a manufacturer who supplies a single product to two competitive retailers. A Stackelberg structure is assumed between two echelons in the two-echelon chain, in which the manufacturer who acts as a leader declares her wholesale price to both retailers and the duopolistic retailers who act as followers set their sale prices and associated order quantities independently under the manufacturer's pricing scheme. The paper analyzes the effects of the duopolistic retailers’ different competitive behaviors—Cournot, Collusion and Stackelberg—on the optimal decisions of the manufacturer and the duopolistic retailers themselves. The results indicate that: (i) among the three scenarios, the duopolistic retailers’ action in collusion makes the retailers charge the highest sale price while the duopolistic retailers’ Cournot behavior results in the lowest pricing of the retailers; (ii) the more drastic the duopolistic retail market competes, the higher the manufacturer's and the duopolistic retailers’ pricing should be; and (iii) the total profit of the duopolistic retailers who act as the followers will exceed the more powerful manufacturer's profit as long as the degree of dissimilarity between the duopolistic retailers’ market demands is large enough.