Cooperative pricing and advertisement for a bi-level supply chain using the game theory approach

This paper examines the co-ordination of pricing and advertisement decisions in a bi-level supply chain. The game theory approach is used to model the pricing, the size of the economic order, the retail sales and constructive sales decisions. Three game scenarios are designed based on the model of the newspaper sales man: 1) The Stackelberg game where the manufacturer of the leading role and retailer as a follower, 2) the Nash game where the manufacturer and retailer have the same market power and 3) Full cooperation game where the manufacturer and retailer take the best decisions. In cooperative situation, we will impose an increase in the cost of advertising on the chain rather than a decentralized chain, but it leads to increased profits and increased customer satisfaction, which means a win-win decision-making system for the supply chain managers and customers.