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Nash Game Model for Optimizing Market Strategies, Configuration of Platform Products in a Vendor Managed Inventory (VMI) Supply Chain for a Product Family

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Listed:
  • Yu, Y.
  • Huang, G.Q.

Abstract

This paper discusses how a manufacturer and its retailers interact with each other to optimize their product marketing strategies, platform product configuration and inventory policies in a VMI (Vendor Managed Inventory) supply chain. The manufacturer procures raw materials from multiple suppliers to produce a family of products sold to multiple retailers. Multiple types of products are substitutable each other to end customers. The manufacturer makes its decision on raw materials’ procurement, platform product configuration, product replenishment policies to retailers with VMI, price discount rate, and advertising investment to maximize its profit. Retailers in turn consider the optimal local advertising and retail price to maximize their profits. This problem is modeled as a dual simultaneous non-cooperative game (as a Nash game) model with two sub-games. One is between the retailers serving in competing retail markets and the other is between the manufacturer and the retailers. This paper combines analytical, iterative and GA (genetic algorithm) methods to develop a game solution algorithm to find the Nash equilibrium. A numerical example is conducted to test the proposed model and algorithm, and gain managerial implications.

Suggested Citation

  • Yu, Y. & Huang, G.Q., 2009. "Nash Game Model for Optimizing Market Strategies, Configuration of Platform Products in a Vendor Managed Inventory (VMI) Supply Chain for a Product Family," ERIM Report Series Research in Management ERS-2009-009-LIS, 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.
    • Handle: RePEc:ems:eureri:15029
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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics

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