Determining Decision Variables for Manufacturer and Retailer in the Co-operative and Non-cooperative Environment: A Game Theory Approach

Several inventory models are proposed for manufacturer and retailer which include competition and cooperation between manufacturer and retailer to maximize their profits. Esmaeili M et al. (2009) developed the relationship between manufacturer and retailer for non-cooperative and cooperative games. But the model did not involve any shortage cost as no shortage was allowed. In this paper, the researcher considers market demand to be affected by marketing expenditure and price charged by retailer. This research allows shortages for the infinite planning horizon and investigates 1. The non-cooperative game for manufacturer-Stackelberg model allowing shortage when manufacturer is the leader and would like to maximize his profit, 2.retailer-stackelberg model when retailer is the leader and would like to maximize his profit, and 3.The co-operative game approach to obtain Pareto Efficient solution. The model is verified through some numerical examples.