A Game-Theoretic Approach to Pricing in a Two-Level Supply Chain Considering Advertising and Servicing

This paper considers advertising, pricing, and service decisions simultaneously to coordinate the supply chain with a manufacturer and a retailer. The amount of market demand is influenced by advertising, pricing, and service decisions. In this paper, three well-known approaches to the game theory, including the Nash, the Stackelberg-retailer, and the cooperative game, are exploited to study the effects of these policies on the supply chain. Using these approaches, we identify optimal strategies in each case for the manufacturer and retailer. Then, we will compare the outcomes of each developed strategy. The results show that, compared with the Nash game, the Stackelberg-retailer game yields higher profits for the retailer, the manufacturer, and the whole supply chain. The cooperative game yields the highest profits. Finally, the Nash bargaining model will be presented and explored to investigate the possibilities for profit sharing.