Price and leadtime competition, and coordination for make-to-order supply chains

This paper develops a game theoretic model of a one-manufacturer and one-retailer supply chain facing an outside integrated chain (manufacturer) to study the price and leadtime competition and investigate coordination of the supply chain, where the make-to-order production mode is employed and consumers are sensitive to retail price and leadtime. We find that decentralization of the supply chain increases its leadtime while decreases the rival’s leadtime; and the decentralization increases the retail prices. The existence of the outside competitor raises the leadtime. A higher reservation price or brand differentiation increases the retail prices but decreases the leadtimes; a higher transportation cost or lower leadtime sensitivity increases the retail prices and the leadtimes. The coordination of the supply chain facing integrated rival harms the integrated rival. We design contracts to coordinate the supply chain under leadtime-decision-first scenario and wholesale-price-decision-first scenario, respectively. Further, we find that the sequence of decisions affects the validity of the all-unit quantity discount scheme in coordinating the supply chain.

•We study the price and lead-time competition between a supply chain and an integrated rival.•We examine the effects of decentralization and existence of outside rival on equilibrium outcome.•Decentralization of a supply chain raises its lead-time but lowers the rival’s, and raises prices.•Subsidy discount plus two part tariffs can but plus quantity discount cannot coordinate the supply chain.•Decisions’ sequence affects validity of quantity discount contract in coordinating supply chain.