Title: Coordination in vendor-buyer inventory systems: on price discounts, Stackelberg game and joint optimisation

Authors: S. Viswanathan

Addresses: Nanyang Business School, Nanyang Technological University, Singapore 639798, Republic of Singapore

Abstract: We consider a version of the Stackelberg game that is used to model discount pricing decisions in vendor-buyer supply chains. The game consists of a leader who is selling a product to one (or more) follower(s) who in turn sell it to the ultimate consumers. We define conditional strategy for the leader as a strategy where the transfer price offered by the leader is conditional upon the specific decision taken by the follower. We show that the leader|s optimal conditional strategy can achieve perfect coordination. We then discuss the application of the result to specific models for discount pricing decisions in vendor-buyer inventory systems and interpret its implications for these models.

Keywords: vendor-buyer inventory systems; coordination; Stackelberg game; quantity discounts; volume discounts; joint optimisation; discount pricing.

DOI: 10.1504/IJOR.2009.026246

International Journal of Operational Research, 2009 Vol.6 No.1, pp.110 - 124

Published online: 30 May 2009 *

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