Pricing and replenishment policies in a supply chain with competing retailers under different retail behaviors

- We study pricing and replenishment policies for a supply chain with multiple competing retailers.
- Both retail-competition and retail-cooperation models for a supply chain are considered.
- Retail cooperation is not stable and replenishment decision is largely affected by game scenario.
- A Groves wholesale price contract is designed to coordinate the supply chain.
- Coordination mechanism includes discount, competitive impact, and revenue regulator components.

This paper develops game models for a two-echelon supply chain with one supplier and multiple competing retailers. We study the pricing decision and the replenishment policy for each member under both the decentralized channel and the centralized channel, and examine the impacts of retail behaviors on them. Compared with the centralized operation, the decentralized operation with linear wholesale price obviously inflates the holding cost for each retailer, which results in the inefficiency for the whole channel. For the decentralized system, both retail-competition and retail-cooperation models are considered. The comparative analysis illustrates how the retail pricing and replenishment decisions are affected by the retail behaviors. We find that the retail cooperation is not stable since each self-interested retailer has an incentive to lower his retail price unilaterally. Finally, in order to improve the performance of the channel and each member, a Groves wholesale price contract is designed to achieve the perfect coordination between the supplier and the retailers. Meanwhile, this coordination model can also be used in the case of a supply chain with independent retailers.