Applying game theory in price and quality decisions of supply chains with a manufacturer and two competitive retailers

This paper considers a two-echelon supply chain with a manufacturer who sells a single product to customers through two competitive retailers. We assume that product quality and unit price charged by the retailers influence the demand of the product being sold. The manufacturer invests in the technology in order to improve quality to develop the market for the product so she determines product quality and the wholesale price for the product. On the other hand, the retailers set the retail price and associated order quantity. We model the supply chain with four scenarios game-theoretic framework and analyze the effects of the manufacturer and retailers different competitive and cooperative behaviors on the optimal decisions of the manufacturer and the retailers. Numerical examples are also presented in this paper to compare the results between different models considered and the optimal configuration from each firm's perspective is discussed. Sensitivity analysis of some key parameters including β, λ and η is also done at the end of the paper.