Applying game theory in Newsvendor’s supply chain model

Abstract

Game theory is a major topic for quantitative decision. This method belongs to uncertain model in operational research/management science. It can be used for solving a conflict event between different profit parties. Recently, there are some works applying this method for dealing with supply chain management problem. Esmaeili et al. (2009) considered the buyer-seller model under symmetric information and proposed non-cooperative Stackelberg game and cooperative game models for the demand related to selling price and marketing expenditure. In this study, the author considers Newsvendor’s supply chain model with imperfect product. The work adopts Esmaeili et al. (2009) method for obtaining the optimal policy about manufacturer’s process mean and buyer’s order quantity under below the specified condition. The optimum profit models include the following three topics : (1) Complete symmetric information for both parties; (2) Non-cooperative Stackelberg games with symmetric information including the manufacturer-Stackelberg model with symmetric information and the buyer-Stackelberg model with symmetric information; (3) Cooperative game with symmetric information.

Subject Classification: (2010):

• 60 (Probability Theory and Stochastic Processes)

Keywords:

• Game theory
• Newsvendor model
• Supply chain
• Non-cooperative Stackelberg game
• Cooperative game
• Symmetric information