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Competition and Coordination in a Fashion Supply Chain with Wholesale Pricing Schemes

Competition and Coordination in a Fashion Supply Chain with Wholesale Pricing Schemes
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Author(s): Jian Huang (Jiangxi University of Finance and Economics, China), Mingming Leng (Lingnan University, Hong Kong) and Liping Liang (Lingnan University, Hong Kong)
Copyright: 2012
Pages: 32
Source title: Fashion Supply Chain Management: Industry and Business Analysis
Source Author(s)/Editor(s): Tsan-Ming Choi (The Hong Kong Polytechnic University, Hong Kong)
DOI: 10.4018/978-1-60960-756-2.ch003

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Abstract

This chapter considers a two-echelon supply chain where a supplier determines his production quantity and a retailer chooses her order size and retail price for each period in an infinite horizon. Under a price-discount sharing (PDS) scheme, the supplier’s wholesale price linearly depends on the retail price. We develop a stochastic game in which these two supply chain members maximize their discounted profits. We show that a unique Nash equilibrium solution exists for each period, and over the infinite horizon the supplier chooses a stationary base stock policy whereas the retailer’s equilibrium solution could be non-stationary. Next, we investigate the problem of whether or not a wholesale pricing scheme can coordinate the supplier and the retailer, and derive the conditions for supply chain coordination. Moreover, we use Nash arbitration scheme to allocate the system-wide profit between the supplier and the retailer.

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