Nash game-theoretic model for optimizing pricing and inventory policies in a three-level supply chain

Abstract

This paper aims to coordinate pricing and inventory decisions in a multi-level supply chain composed of multiple suppliers, one manufacturer and multiple retailers. We model this problem as a three-level nested Nash game where 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. A numerical study is conducted to understand the influence of different parameters on the decisions and profits of the supply chain and its constituent members. Several interesting research findings have been obtained. © 2011 Springer Science+Business Media B.V.