Joint Dynamic Innovation and Pricing Decisions for the ODM Supply Chain

Abstract

More and more companies in the supply chain choose the cooperation mode of original design and manufacturing (ODM). This paper investigates the problems of the joint design innovation and pricing strategies for the ODM supply chain by considering the impact of the dynamic of quality level on market demand. First, applying differential game theory, optimal strategies for design innovation, and pricing under decentralized and centralized scenarios are obtained. At the same time, the optimal strategies under the two decision-making scenarios are compared and analyzed. Second, a two-part tariff contract is introduced to coordinate the decentralized ODM supply chain. Finally, we further establish a Nash bargaining model among members of the supply chain. It is found that, in a centralized system, the design innovation efforts, product quality levels, and supply chain profits in the decentralized decision scenario are lower than that in the centralized decision scenario, but the selling price relationship in both scenarios depends on the parameters of the operating system.