Coordination of pricing and leadtime quotation under leadtime uncertainty

- Consider a firm with pricing and leadtime decisions are made in a separate way.
- Based on the power structure, the problem is modeled as Nash or Stackelberg game.
- For each game, the unique equilibrium is derived.
- For each decentralized setting, a coordination mechanism is developed.
- Under some conditions, marketing Stackelberg framework dominates Nash framework.

In many service and make-to-order manufacturing firms, pricing and leadtime quotation are two of the most important decisions. We consider a firm that serves customers who are sensitive to both price and quoted leadtime, with pricing and leadtime decisions being delegated to the marketing and production departments, respectively. According to the power structure within the firm, we model the problem as a Nash game, production Stackelberg game, and marketing Stackelberg game. For each game, the unique equilibrium is derived. In addition, for each decentralized setting, we design a mechanism that can be used by the firm to coordinate the decisions of the production and marketing departments. It is observed that the coordination schemes in the different games are of the same form. In particular, we find that the detailed values of the coordinating transfer prices under different power structures are the same. Moreover, we demonstrate that under some mild conditions on the level of the potential demand, the marketing Stackelberg game Pareto-dominates the Nash game in terms of expected profits.