Manufacturer's Pricing Strategy for Supply Chain with Service Level-Dependent Demand

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Cheng Qin 1 Tang Shu-yi 1,*

1. School of Management, University of Science and Technology of China, Hefei, People’s Republic of China

* Corresponding author.


Received: 11 Sep. 2014 / Revised: 15 Oct. 2014 / Accepted: 20 Nov. 2014 / Published: 22 Dec. 2014

Index Terms

Service level, pricing strategy, Stackelberg game, segmented pricing, unified pricing


This article considers the pricing strategies of a manufacturer in a two-echelon supply chain with service level-dependent demand. This chain consists of one manufacturer and two retailers. The manufacturer decides the wholesale prices as a Stackelberg leader, and the retailers determine their service levels as the Stackelberg followers. We discuss the segmented and unified pricing strategies of the manufacturer. We also compute the optimal service levels and profits of the retailers, as well as the optimal wholesale prices and profits of the manufacturer associated with different pricing strategies. We conclude that the segmented pricing strategy benefits the manufacturer, whereas it cannot benefit the two retailers simultaneously. Furthermore, it is disadvantageous to the profit of the entire supply chain. Moreover, the increase in service cost coefficient adversely affects the earnings of the customers, the retailers, the manufacturer, and the entire supply chain. However, an increase in diffusion intensity benefits the customers, the manufacturer, and the supply chain.

Cite This Paper

Cheng Qin, Tang Shu-yi,"Manufacturer's Pricing Strategy for Supply Chain with Service Level-Dependent Demand", IJEM, vol.4, no.4, pp.1-13, 2014. DOI: 10.5815/ijem.2014.04.01


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