Decentralized versus centralized performances in the case of Stackelberg game between a customer and two suppliers

The present paper considers a supply chain which consists of a customer and two capacitated suppliers. The customer receives the proposition of a new product procurement and seeks to allocate demand volume to suppliers in a manner to maximize his profit. Suppliers employ base stock policies for inventory replenishment. Each supplier chooses a base stock level which maximizes his profit. In addition, we let each member accept or refuse the new product proposal according to its profitability. We investigate the Stackelberg game where the customer dominates the supply chain. By comparing the resulting system performances with the corresponding centralized one, we show that the inefficiency of the Stackelberg game may reach more than 80% in quite a lot of cases. We underline the benefit of cooperation, and provide some profit allocation arrangements that lead to better players´ profits.