Supply chain network design under oligopolistic price and service level competition with foresight

•We model a supply chain (SC) network design problem competing to an existing SC.•The SCs compete is in retailer level and offer the substitutable products in the market.•The market demand of the competing SCs is a function of price and service level.•We develop a bi-level, fractional model and solve it by a path based technique.•Some sensitivity analyses are performed to assist SCs in competing environments.

In this paper a new bi-level model for designing the network structure of a competitive supply chain (SC) is presented with anticipating variable prices and service levels competition in markets under stochastic price and service level dependent elastic demands with the presence of existing, external rivals. The network structure of the new entrant SC would be designed under the limited production capacity of its producers in a way to maximize its future capturable profit in the competitive markets. The network of the new SC is assumed to be set “once and for all” but further price and service level adjustments are possible. Outer part of this bi-level model deals with strategic decisions of SC network design. Given the SC network structure assigned by the outer model in each iteration, the inner equilibrium model determines the equilibrium retail prices and service levels. Finally, we illustrate the model through several numerical examples.