Coordination and price competition in a duopoly common retailer supply chain

Authors:
Santanu Sinha;S. P. Sarmah
Affiliations:
Complex Decision Support Systems, Tata Consultancy Services, Mumbai 400093, India;Department of Industrial Engineering and Management, Indian Institute of Technology, Kharagpur 721302, India
Venue:
Computers and Industrial Engineering
Year:
2010

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Abstract

This paper analyzes the coordination and competition issues in a two-stage supply-chain distribution system where two vendors compete to sell differentiated products through a common retailer in the same market. The demand of a product not only depends on its own price, but also on the price of the other. Mathematical models have been developed to analyze the coordination issues under three different contexts: (i) price competition without channel coordination; (ii) price competition with channel coordination; and (iii) global coordination. It has been shown that under certain conditions, price competition through the dynamic process of price adjustment reaches the Nash-Bertrand equilibrium. Conditions have been derived for the Nash-Bertrand equilibrium to be dynamically stable. Further, it has been shown that duopoly competition can make consumers better-off or worse-off depending on the degree of product differentiation and the type of the product; while coordination enhances overall supply-chain profitability. The model is illustrated with suitable numerical examples.