Bargaining in supply chain with price and promotional effort dependent demand

Abstract

This paper investigates the bargaining equilibrium behavior of an industry with two competing supply chains. The demand in each supply chain is modeled using the downward-sloping linear function with respect to both price and promotional effort. The optimality is established through Nash bargaining when the two competing manufacturers distribute through two independent competing retailers. We show, when both price and promotional effort dependent demand is present, that both the traditional Manufacturer Stackelberg (MS) and the Vertical Integration (VI) are special cases of our Nash bargaining game. We conclude that both sales promotional service and price dominates bargaining on only one factor. We yield several conclusions about the provision of promotional service level by each supply chain to coordinate the channel.