Competition in Supply Chain with Service Contributions

We study the supply chain with two manufacturers producingcompeting products and selling them through a common retailer. Thetwo manufacturers must decide on the wholesale price and the levelof service they plan to provide to the consumer. Each firm areassumed to optimize only its own profit (uncoordinated). Theconsumer demand depends on two factors: (1) retail price, and (2)service level provided by the manufacturer. We extend the study onthis basic model in three directions. First, we explore the roleof bargaining power in supply chain strategic interactions. Wederive and compare equilibrium solutions for the supply chainunder three different scenarios (e.g., Manufacturer Stackelberg,Retailer Stackelberg, and Vertical Nash). Second, we extend theframework to study multi-period model. In this model, demand alsodepends on the past period retail prices and service levels, aswell as current prices and service levels. Game-theoreticapproaches and dynamic system and control theory are used as toolsto model the problem. Finally, we examine a single period problemwith stochastic demand. When demand is uncertain, the retailerfaces a newsvendor-type problem. In our model, the newsvendor mustmanage two competing products against a price-dependent demand. Wederive an expression for the newsvendor's optimal retail prices.Next, we provide an algorithm to search for the equilibriumwholesale price and service level, given that the manufacturersknow the retailer's reaction function. Some numerical examples are provided.