Game-theoretic approach to supply chain coordination in a three-member distribution channel

This paper deals with supply chain coordination in a threemember distribution channel in order to optimize channel's members net profits by moving to cooperation. The supply chain coordination is addressed through supplier development program between supplier and manufacturer and in co-op advertising scheme among manufacturer and retailer in which the former intends to enhance suppliermanufacturer channel's performance and the latterinducessalesthrough manufacturer-retailer coordination. The manufacturer isa key member who simultaneously engages in supplier development and co-op advertising with his supplier and retailer respectively;while he has a limited budget to invest in. We considercooperative game-theoretic model to determine how the manufactureroptimally allocates his budget between supplier development investments and advertising expenditures. A numerical study is conducted through a series of simulations to illustrate optimal solutionsof channel members in cooperation game and toprovideuseful insights into the mutual impacts of co-op advertising and SD decisions. Furthermore, we examine the feasibility of cooperation game and discuss how the manufacturer and the retailer share the extra joint profitusing Nash bargaining model.

Keywords:

chaincoordination , Cooperative advertising , Supplier development , Game theory