Pricing and Lead Time Decisions in Decentralized Supply Chains

Liming Liu (), Mahmut Parlar () and Stuart X. Zhu ()
Additional contact information
Liming Liu: Faculty of Business, Hong Kong Polytechnic University, Hung Hom, Hong Kong
Mahmut Parlar: DeGroote School of Business, McMaster University, Hamilton, Ontario L8S 4M4, Canada
Stuart X. Zhu: Department of Information and Systems Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong

Management Science, 2007, vol. 53, issue 5, 713-725

Abstract: This paper studies a decentralized supply chain consisting of a supplier and a retailer facing price- and lead-time-sensitive demands. A Stackelberg game is constructed to analyze the price and lead time decisions by the supplier as the leader and the retailer as the follower. The equilibrium strategies of the two players are obtained. Using the performance of the corresponding centralized system as a benchmark, we show that decentralized decisions in general are inefficient and lead to inferior performance due to the double marginalization effect. However, further analysis shows that the decision inefficiency is strongly influenced by market and operational factors, and if the operational factors are dominating, it may not be significant. This shows that before pursuing a coordination strategy with retailers, a supplier should first improve his or her own internal operations.

Keywords: decentralized supply chains; price- and lead-time-sensitive demand; customer utility; promised delivery lead time; Stackelberg game; decision inefficiency; operational and market factors; pricing; double marginalization (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (64)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.1060.0653 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:53:y:2007:i:5:p:713-725

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().