Stackelberg Game Theory Model with Price and Shelf Space Dependent Demand under Revenue Sharing Contract

This paper focuses on supply chain coordination under a revenue sharing contract. Demand plays a crucial role in modeling inventory systems, particularly in the retail industry where products need to be brought in and taken out of retail stores within specified timeframes. The question addressed is how to allocate shelf space effectively. Optimal shelf space allocation in retail significantly impacts product sales and profitability. The research demonstrates that by considering factors such as price, allocated shelf space, product brand image, and advertising, a new demand function can be developed. The study explores decentralized, centralized, and coordinated structures using a Stackelberg game model. The findings show that a revenue sharing contract leads to a win-win outcome in the supply chain. Additionally, a numerical example is provided to illustrate the model, and sensitivity analysis is performed on key parameters. The results highlight the significant impact of price elasticity on demand, emphasizing the need to pay close attention to this parameter in real-world applications.