Strategic decision making in competitive marketing channels using a differential games framework

In the paper a decision support tool for helping marketing managers of manufacturing companies and chief buyers of retail chains to examine various strategic options in competitive situations is described. The decision aid considers the problems of decision making in a system comprising two competing manufacturers who make a product which they sell through two competing retailers to consumers. The decision making is done over a defined time horizon and stocks exist both at the levels of the manufacturers and the retailers. Each player (manufacturer/retailer) attempts to maximise overall profits over the time horizon of interest while responding to the moves of the other players. The decision support system enables the marketing managers of the manufacturing or retailing companies to study various strategic scenarios as the decision support system attempts to compute the nonco-operative (Nash) equilibria of the corresponding differential game, in the cases where they exist. Such studies are of great importance in attempting to assess the likelihood of possible competitor retaliation.