A Game Theory Approach in Supplier Selection Problem Considering Two Scenarios of Cooperation and Discount Contract

In this paper, the problem of supplier selection has been studied by considering two scenarios of cooperation and competition. Suppliers have no capacity constraints and have several shipments in a production cycle. Two contract scenarios are analyzed by game theory techniques. In the first scenario, the cooperation among suppliers and the buyer is analyzed by cooperative game theory under wholesale price contract and profit allocation methods of Shapley, τ value, and least core. In the second scenario, the competition of suppliers under quantity discount contract with supplier leader Stakelberg game approach is analyzed. It is shown that the cooperative scenario includes stable core solutions which minimizes the total supply chain cost. In addition, the opportunity cost plays a crucial role in the selection of suppliers. After identifying payoff functions of the players, the equilibrium points of the scenarios are determined and compared in a numerical example. The total supply chain cost is improved in cooperation in comparison to competitive scenario. The τ value is the best scenario for the buyer while shapley value gives favorable allocations to suppliers.