Distribution Design of Two Rival Decenteralized Supply Chains: a Two-personNonzero Sum Game Theory Approach

We consider competition between two decentralized supply chain networks under demand uncertainty.Each chain consists of one risk-averse manufacturer and a group of risk-averse retailers. These two chainspresent substitutable products to the geographical dispensed markets. The markets’ demand is a functionof prices, service levels and advertising efforts of two chains. We formulate the distribution designproblem of two rival chains as a two-person nonzero sum game theoretical model. Since strategicdecisions of distribution network design often have priority over tactical ones, we first calculate theequilibrium of tactical decisions for each pair of distribution design scenarios and according to thepresented methodology, we find Nash equilibrium solutions of distribution network scenarios for two rivalchains. Eventually, to illustrate the real applications of the methodology, a numerical example is presentedand analyzed.