Supply Chain Pricing Model Considering Competing Retailers And Different Market Structures

With the rapid development of society productivity and improvement of people’s income, continuous change is happening in retail industry. Large chain-retailers has being rising sharply. The emerging of large chain-retailers on the one hand has changed the power distribution in the supply chain, on the other hand restructured the competitive situation of the retail industry. Thus two problems appear. First, how do the manufacturer and retailer make the right pricing decision to achieve maximum profit? Second, how do different market structures influence the price and profit of the supply chain?In this paper, a supply chain pricing model consisting one manufacturer and two retailers was set up, which innovatively considered both the power structure of the supply chain and the retail market. Using Stackelberg gaming theory, the optimal pricing decisions of the supply chain members was found. Through comparing the equilibrium solution, the impact of different power structure was studied.Analysis on the impact of the power structure of the supply chain shows that both the optimal wholesale price and retail price is higher when the manufacturer dominates the supply chain, the optimal wholesale price is lowest when the retailers dominates the supply chain, and the optimal retail price is lowest when the supply chain is Vertical Nash. For the profits, both the manufacturer and the retailers achieve their highest maximum profit when itself dominates the supply chain, and the supply chain’s profit is highest when the supply chain is Vertical Nash and lowest when the manufacturer dominates the supply chain.On the premise of manufacturer dominating the supply chain, the power structure of retail market shows the following influences. Whether is a dominator or not, the optimal wholesale price doesn’t change anymore. While both the two retailers make higher retail price and get more profit when one retailer dominates the retail market. On the contrary, both the maximum profit of the manufacture and the profit of the supply chain reduce.Additionally, on the premise of retailer dominating the supply chain, the power structure of retail market shows some other influences. Result shows that the impacts of the power structure of retail market on the optimal price and profit is changing when the relationship of price sensitive coefficient and cross price elasticity coefficient of the demand differs. But no matter how the relationship changes, the leader retailer can always achieve a profit no less than the profit it gets when the retailer market is equilibrium, and the follower retail’s optimal retail price never be higher than the optimal retail price it make when the retailer market is equilibrium.