Discounting Strategy in Two-Echelon Supply Chain with Random Demand and Random Yield

This paper analyzes different pricing strategies in a two-echelon supply chain including one supplier and two retailers. The supplier and the retailers face random yield and random demand, respectively. Moreover, coordination or non-coordination of retailers in receiving the discount is investigated. Game theory is used to model and analyze the problems. The supplier as a leader of Stackelberg specifies quantity discount and an initial wholesale price. Then, retailers determine their optimal order quantity in which their profit is maximized. Finally, the supplier decides on the quantity of the input for production. Coordination of the retailers in receiving discount quantity enhances their profit and improves supply chain performance. However, the supplier gains more profit by escalating competition between customers/retailers. Numerical examples are shown to explain the results.