Coordinating price model for retailer dominant in a two-echelon supply chain

This paper proposed a coordinating pricing model, in which the retailer occupies a leading position. Coordinating pricing is a practice that a manufacturer pays a retailer a portion of sales promotion expenses in order to induce sales. Comparing with other relative studies, we assume the market demand is not only influenced by retail price but also by sales promotion expenses. With the game theory, we analyses and find out Stackelberg equilibrium solution, manufacturer´s, retailer´s and system´s maximum expected profits. Furthermore, through the economic analysis on the sales promotion expenses´ share ratio, we find manufacture´s optimal share ratio depends on the demand sensitivity to the retail price and to the sales promotion expenses and get the optimal sales promotion expenses´ share ratio that optimizes the entire two-echelon supply chain.