Stackelberg equilibria in a multiperiod vertical contracting model with uncertain and price-dependent demand

Leif Sandal () and Jan Ubøe

No 2012/2, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: In this paper, we consider Stackelberg games in a multiperiod vertical contracting model with uncertain demand. Demand has a distribution with a mean and variance that depend on the current retail price, and this dependence may vary from period to period. We focus on a class of problems in which the market has a memory-based scaling of demand, and the mean scaling is a function of previous retail prices. This leads to a strategic game in which the parties must balance high immediate profits with reduced future earnings. We propose a complete solution to this multiperiod Stackelberg game, covering cases with finite and infinite horizons. The theory is illustrated by using a Cobb-Douglas demand function with an additive, normally distributed random term, but the theory applies to more general settings.

Keywords: Stackelberg game; multiperiod vertical contracting model; price-dependent demand (search for similar items in EconPapers)
JEL-codes: C61 C73 D81 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2012-02-27
New Economics Papers: this item is included in nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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