Pricing and effort decisions for a supply chain with uncertain information

Abstract

This paper analyses the pricing and effort decisions of a supply chain with single manufacturer and single retailer. The manufacturer produces a kind of product and then wholesales the product to the retailer, who in turn retails it to customers over a single selling season. The retailer can influence demand through her sales effort. This research depicts the consumer demand, the manufacturing cost and the sales effort cost as uncertain variables. Considering the demand expansion effectiveness of sales effort, one centralised and three decentralised game models are built on the basis of the expected value criterion, and the equilibrium solutions are obtained. We investigate the effects of the parameters’ uncertainty degrees on the pricing and effort decisions. The results indicate that the manufacturer benefits from improvement in demand and cost uncertainties when he has at least bargaining power in the supply chain. The results also imply that the uncertainty degree of sales effort elasticity has an outstanding influence on the pricing and effort decisions, whereas the uncertainty degree of price elasticity has a modest impact on these decisions. We also study the effects of the parameters’ uncertainty degrees on the supply chain from the consumers’ perspective. The results suggest that with a power retailer, the retail price should always be on the high end. Consequently, consumers do not necessarily benefit from a power retailer. When the manufacturer and the retailer have equal bargaining power, consumers do not necessarily benefit from the supply chain, either.

Keywords:

• supply chain design
• supply chain management
• game theory
• demand uncertainty
• contracting

Notes

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [grant number 71471126]; the Specialized Research Fund for the Doctoral Program of Higher Education of China [grant number 20130032110015]; the Projects of the Humanity and Social Science Foundation of Ministry of Education of China [grant number 13YJA630065]; the Key Project of Hubei Provincial Natural Science Foundation [grant number 2015CFA144].