Strategic inventory: Manufacturer vs. retailer investment

This paper presents a two-period supply chain model under demand induced by selling price and investment effort in the presence of strategic inventory. We compared six different scenarios to identify optimal pricing decisions. An incremental quantity discount contract was applied to verify supply chain coordination. Our findings show that manufacturer-investment efforts cannot always persuade the retailer carrying strategic inventory to maintain harmony among supply chain participants; however, retailer-investment efforts can promote harmony when strategic inventory is used. The retailer's decision to carry strategic inventory is catastrophic from the perspective of supply chain coordination, but benign for the decentralized supply chain.