Leader-follower Game in VMI System with Limited Production Capacity Considering Wholesale and Retail Prices
AbstractVMI (Vendor Managed Inventory) is a widely used cooperative inventory policy in supply chains in which each enterprise has its autonomy in pricing. This paper discusses a leader-follower Stackelberg game in a VMI supply chain where the manufacturer, as a leader, produces a single product with a limited production capacity and delivers it at a wholesale price to multiple different retailers, as the followers, who then sell the product in dispersed and independent markets at retail prices. An algorithm is then developed to determine the equilibrium of the Stackelberg game. Finally, a numerical study is conducted to understand the influence of the Stackelberg equilibrium and market related parameters on the profits of the manufacturer and its retailers. Through the numerical example, our research demonstrates that: (a) the market related parameters have significant influence on the manufacturerâ€™ and its retailersâ€™ profits; (b) a retailerâ€™s profit may not be necessarily lowered when it is charged with a higher inventory cost by the manufacturer; (c) the equilibrium of the Stackelberg equilibrium benefits the manufacturer.
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Bibliographic InfoPaper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam. in its series Research Paper with number ERS-2006-054-LIS.
Date of creation: 20 Dec 2006
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Web page: http://www.erim.eur.nl/
Stackelberg Game; Supply Chain; Vendor Managed Inventory;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-13 (All new papers)
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