Distribution Design of Two Rival Decenteralized Supply Chains: a Two-person Nonzero Sum Game Theory Approach

We consider competition between two decentralized supply chain networks under demand uncertainty. Each chain consists of one risk-averse manufacturer and a group of risk-averse retailers. These two chains present substitutable products to the geographical dispensed markets. The markets’ demand is a function of prices, service levels and advertising efforts of two chains. We formulate the distribution design problem of two rival chains as a two-person nonzero sum game theoretical model. Since strategic decisions of distribution network design often have priority over tactical ones, we first calculate the equilibrium of tactical decisions for each pair of distribution design scenarios and according to the presented methodology, we find Nash equilibrium solutions of distribution network scenarios for two rival chains. Eventually, to illustrate the real applications of the methodology, a numerical example is presented and analyzed.