Pricing and advertising decisions in a dominant-retailer supply chain: A multi-follower bi-level programming approach

Pricing and advertising is one of the most important decisions in each supply chain especially in the competitive environment. In the previous studies, this is as a centralized decision. However, if each channel member makes its decision independently, the utility of all members is optimized. In such decentralized situations, the channel members may have different market power that they influence on the other members’ decisions. These issues can modeled through leaderfollower Stackelberg game or bilevel programming. This study investigates coordination of pricing and cooperative advertising in a twostage supply chain consisting of one dominantretailer and multiple competitive manufactures which produce several perishable and substitutable products. This paper aims to determine pricing and cooperative advertising decisions expenditure as well as the amount of manufacturers’ production or retailer’s purchase such that utility of all members is met. Hence, the problem is modeled as a multifollower bilevel programming problem. Since it is proved that the model is NPhard, the proposed model is solved through simulated annealing. A numerical example is used to show the impact of demand’s variations on the members’ decisions.