Optimum pricing strategy for complementary products with reservation price in a supply chain model

Abstract

This paper describes a two-echelon supply chain model with two manufacturers and one common retailer. Two types of complementary prod ucts are produced by two manufacturers, and the common retailer buys prod ucts separately using a reservation price and bundles them for sale. The de mands of manufacturers and retailer are assumed to be stochastic in nature. When the retailer orders for products, any one of manufacturers agrees to allow those products, and the rest of the manufacturers have to provide the same amount. The profits of two manufacturers and the retailer are maximized by using Stackelberg game policy. By applying a game theoretical approach, several analytical solutions are obtained. For some cases, this model obtains quasi-closed-form solutions, for others, it finds closed-form solutions. Some numerical examples, sensitivity analysis, managerial insights, and graphical illustrations are given to illustrate the model.