Partial Cooperation Opportunities in a Two-Echelon Supply Chain

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Bakal I. S., Diler B., Karaer Ö.

OR 2016 Hamburg, Hamburg, Germany, 30 August - 02 September 2016, pp.50

  • Publication Type: Conference Paper / Summary Text
  • City: Hamburg
  • Country: Germany
  • Page Numbers: pp.50
  • Middle East Technical University Affiliated: Yes


In this study, we consider a two-echelon supply consisting of two manufacturers and a single retailer. Each manufacturer produces a single product, and the products are substitutable. The demand for the products is random. Before the retailer determines the order quantities, the manufacturers set their wholesale prices simultaneously. In this setting, we consider the decentralized setting where each party acts independently, and model the vertical competition between the retailer and the manufacturers as well as the horizontal competition between the manufacturers. We first characterize the order quantities of the retailer. Then, we consider the pricing problem of the manufacturers and determine the equilibrium wholesale prices. We also consider the setting where the prices are determined sequentially. We next consider different alternatives for cooperation. We first investigate the retailer’s choice in forming a coalition with one of the manufacturers and observe its effects on the ordering decisions. Then, we aim to quantify the benefits that the manufacturers can generate by coordinating their pricing decision.