Game-Theoretic Coordination of Marketing and Inventory Policies in a Multi-level Supply Chain

Coordinating marketing and inventory policies of the supply chain is a useful approach to optimizing the performance of both the supply chain and the individual firms. This paper is concerned with the coordination of pricing and replenishment decisions in a multi-level supply chain composed of multiple suppliers, one manufacturer and multiple retailers. The problem is modeled as a three-level nested non-cooperative simultaneous game (i.e. Nash game) in which all the suppliers formulate the bottom-level Nash game, the whole supplier sector play the middle-level Nash game with the manufacturer, and both sectors as a group player formulate the top-level Nash game with the retailers. Analytical method and solution algorithm are developed to determine the equilibrium of the game. Finally, a numerical study is conducted to understand the influence of market, production and raw material related parameters on decisions and profits of the supply chain and its constituent members. Several research findings have been obtained.