Competition in a Decentralized Supply Chain under Price and Safety Stock Sensitive Stochastic Demand and Buyback Contract

Abstract

In this paper, we study a buyback contract model of the competitive newsvendor problem between a single supplier and multiple retailers under simultaneous price and safety stock competition. A price completion factor and a spill rate translate the price and safety stock competition, respectively. Our model is an extension of the problem analyzed in Zhao and Atkins (2) by the adoption of a buyback rate in the chain, which gives new Nash equilibrium conditions. Then, we compute numerically the Nash equilibrium prices, optimal wholesale prices for the supplier’s and the retailers’profits and supply chain optimal retailers’prices. The effect of competition and distribution parameters will be discussed and compared to that of the non-competitive model and chain optimization.

Keywords

• supply chain management
• nash equilibrium
• stochastic demand
• competing retailers
• inventory stock
• buyback