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A supply chain network game theory model with product differentiation, outsourcing of production and distribution, and quality and price competition

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  • Anna Nagurney
  • Dong Li

Abstract

In this paper, we develop a supply chain network game theory model with product differentiation, possible outsourcing of production and distribution, and quality and price competition. The original firms compete with one another in terms of in-house quality levels and product flows, whereas the contractors, aiming at maximizing their own profits, engage in competition for the outsourced production and distribution in terms of prices that they charge and their quality levels. The solution of the model provides each original firm with its optimal in-house quality level as well as its optimal in-house and outsourced production and shipment quantities that minimize the total cost and the weighted cost of disrepute, associated with lower quality levels and the impact on a firm’s reputation. The governing equilibrium conditions of the model are formulated as a variational inequality problem. An algorithm, which provides a discrete-time adjustment process and tracks the evolution of the product flows, quality levels, and prices over time, is proposed and convergence results given. Numerical examples are provided to illustrate how such a supply chain network game theory model can be applied in practice. The model is relevant to products ranging from pharmaceuticals to fast fashion to high technology products. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Anna Nagurney & Dong Li, 2015. "A supply chain network game theory model with product differentiation, outsourcing of production and distribution, and quality and price competition," Annals of Operations Research, Springer, vol. 226(1), pages 479-503, March.
    • Handle: RePEc:spr:annopr:v:226:y:2015:i:1:p:479-503:10.1007/s10479-014-1692-5
    DOI: 10.1007/s10479-014-1692-5
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    5. E. Allevi & A. Gnudi & I. V. Konnov & G. Oggioni, 2018. "Evaluating the effects of environmental regulations on a closed-loop supply chain network: a variational inequality approach," Annals of Operations Research, Springer, vol. 261(1), pages 1-43, February.
    6. Shiva Zandkarimkhani & Hassan Mina & Mehdi Biuki & Kannan Govindan, 2020. "A chance constrained fuzzy goal programming approach for perishable pharmaceutical supply chain network design," Annals of Operations Research, Springer, vol. 295(1), pages 425-452, December.
    7. Qinpeng Wang & Longfei He, 2018. "Managing Risk Aversion for Low-Carbon Supply Chains with Emission Abatement Outsourcing," IJERPH, MDPI, vol. 15(2), pages 1-20, February.
    8. Xing Wang & Ya-wei Qi & Chang-qi Tao & Yi-bin Xiao, 2017. "A Class of Delay Differential Variational Inequalities," Journal of Optimization Theory and Applications, Springer, vol. 172(1), pages 56-69, January.
    9. Li, Dong & Nagurney, Anna, 2015. "A general multitiered supply chain network model of quality competition with suppliers," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 336-356.
    10. Nagurney, Anna & Saberi, Sara & Shukla, Shivani & Floden, Jonas, 2015. "Supply chain network competition in price and quality with multiple manufacturers and freight service providers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 77(C), pages 248-267.
    11. Peng Liang & Hasan Cavusoglu & Nan Hu, 2023. "Customers’ managerial expectations and suppliers’ asymmetric cost management," Production and Operations Management, Production and Operations Management Society, vol. 32(6), pages 1975-1993, June.
    12. O. A. Malafeyev & A. N. Malova & A. E. Tsybaeva, 2019. "Psychological model of the investor and manager behavior in risk," Papers 1901.08772, arXiv.org.
    13. Wu, Xiangxiang & Zha, Yong & Yu, Yugang, 2022. "The developer’s sourcing strategy in the presence of a competing manufacturer and consumers’ two-dimensional differentiated preferences," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 158(C).
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    16. Dong Li & Anna Nagurney, 2017. "Supply chain performance assessment and supplier and component importance identification in a general competitive multitiered supply chain network model," Journal of Global Optimization, Springer, vol. 67(1), pages 223-250, January.

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