A game-theoretical model of a decentralized supply chain under price sensitive demand

Coordination among stages within a supply chain represents a crucial problem, particularly in the cases where control is decentralized. In this paper we consider the coordination among partners in a two-stage decentralized supply chain, where the first stage is a supplier and the second stage a buyer. We analyze the development of coordination mechanisms through the use of quantity discounts and inventory coordination, with the aim of optimizing the performance of the chain assuming that the stages trade a single product that experiences a pricesensitive demand. By considering a game theoretical framework, we develop a non-cooperative and cooperative models. In the former case we take the supplier as the leader in the negotiation and build his optimal discount policy using a Stackelberg equilibrium. For the latter case we optimize the complete supply chain's performance by taking all players' decisions simultaneously in an integrated optimization model. We analyze the benefits of cooperation among players through numerical examples.