A GAME THEORETIC APPROACH FOR PRODUCT PRICING IN A TWO ECHELON SUPPLY CHAIN CONSIDERING QUANTITATIVE DISCOUNTS AND RETURN POLICIES

In today's business world, companies try to collaborate with each other without losing their own competitive powers. In this case, the concept of coopetition can describe these situations excellently. In this paper, collaboration between a supplier and a retailer in a decentralized supply chain has been examined through the use of quantitative discounts in a game theory model. In this model, the agents are faced with inventory, pricing, and discount-offering decisions. At first, this paper examines the problem in the case where the supplier does not offer any discounts to the retailer and obtains the results. Then the paper studies a situation that the supplier applies a discount on the retailer's wholesale price and retailer sells the product to the customers with the same amounts of discounts. In these situations, the paper models a sequential game that the supplier is the leader of the negotiations in order to obtain the Stackelberg Equilibrium. Also the retailer is allowed to set different prices for the customer according to the supplier's discount decisions. Finally, the model is analyzed by studying the fixed and variable transportation costs, using two scenarios in which the costs are paid by the supplier or the retailer. In the investigated problems, if the final customer is dissatisfied, the product is returned to the retailer at a different price, and the retailer sells the returned product at a new price in a secondary market. The results indicate that an increase in the retail price reduces the utilities of the customers from purchasing the product. Nevertheless, such increase also enhances the return price, leading to a greater incentive for the customers to return the purchased products. So an increase in the retail price can even increase the demands of customers. Also a numerical analysis shows that collaboration between the members of a supply chain through a discount contract can significantly improve the profits of the retailer and the supplier.