A game theoretical approach for pricing in a two-level supply chain considering advertising and servicing

Abstract

This paper considers the advertising, pricing, and service decisions simultaneously to coordinate the supply chain with a manufacturer and a retailer. The amount of market demand is influenced by advertising, pricing and service decisions. In this paper, three well-known approaches to the game theory, including the Nash, the Stackelberg-retailer, and the cooperative game are exploited to study the effects of these policies on the supply chain. Using these approaches, we identify optimal strategies in each case for the manufacturer and the retailer. Then, we will compare the outcomes of each strategy thus developed. The results show that, compared with the Nash game, the Stackelberg-retailer game yields higher profits for the retailer, the manufacturer, and the whole system. The cooperative game yields the highest profits. Finally, the Nash bargaining model will be presented and explored to investigate the possibilities for profit sharing.

Keywords

• Supply chain
• Services
• advertising
• Pricing
• Game theory.