On sales pricing and recovery for closed-loop supply chain coordination based on game theory

This paper addresses pricing and recovery strategy and coordination mechanism of the closed-loop supply chain composed of a manufacturer and two retailers based on game theory. Firstly the effectiveness of the closed-loop supply chain is studied under the situation that the manufacturer and two retailers cooperate with each other. Then under the circumstance of Stackeiberg game, in which the manufacturer is the leader and the two retailers are followers, the effectiveness of the closed-loop supply chain is analyzed respectively when the retailers are or are not in the cooperation with each other. Next through comprehensive comparison it is found that the entire closed-loop supply chain system can get the optimal effectiveness only when manufacturer and retailers are in the state of cooperation. Finally this paper presents an improved decentralized decision-making model and a cooperation mechanism of supply chain. Through the contract of profit sharing and by decentralized decision-making mode, the supply chain can avoid double marginalization effect of profit and gain the optimal revenue, which are attained at the same level as in the centralized decision-making coordinated system, when the manufacturer and retailers can get more profit than they get under the circumstances of Stackeiberg game.