Two-level supply chain models with imperfect quality items when demand influences price and marketing promotion

Abstract

The present paper studies a supply chain model with items that are of imperfect quality and with the assumption that end demand is responsive to price and promotion cost. The seller delivers items to the buyer in a lot. After an inspection process, it is observed that few articles produced are not of perfect quality. These defects might be the result of common operations or static maintenance. These defective items are then collected and are sold at a lower/discounted price. In this paper, supply chain models are developed to approve the interaction among the players, in the supply chain channel. This interaction between the players is demonstrated by non-cooperative and cooperative game theoretical approaches. In non-cooperative approach, optimal solutions are attained by game theoretic approaches named as Seller–Stackelberg and Buyer–Stackelberg. In the cooperative approach, a Pareto efficient solution is outlined. In the last, numerical illustrations with sensitivity scrutiny are presented to support the theory of the present paper.