Price Competition Between Two Leader-Follower Supply Chains, A Case Study

We develop a model for a real-world case problem as a price competition model between two leader-follower supply chains that each of them consists of a manufacturer and a retailer. The manufacturer produces partially differentiated products and sells to the market through its retailer. The retailer sells the products of the manufacturer to the market by adding some values to the products and gains margin as a fraction of the all income of selling products. We use a two-stage Stackelberg game model to investigate the dynamics between these supply chains and obtain the optimal prices of products. We explore the effect of varying the level of substitutability coefficient of two products on the profits of the leader and follower supply chains and derive some managerial implications. We find that the follower supply chain has an advantage when the products are highly substitutable. Also, we study the sensitivity analysis of the fraction of requested margin by retailer on the profit of supply chains.

Keywords:

Supply chain management , Price competition , Pricing , Stackelberg game