Equilibrium pricing in supply chains with discrete stochastic demands: A case study in coffee supply and distribution industry

ABSTRACT This study addresses the optimization of price and production quantity using game theory in the coffee supply chain in the city of Isfahan. The presented model focuses on the competition among members of the chain in a probabilistic environment and is based on discrete selection models. This model examines the impact of inventory and routing costs on the pricing model at the same time. To effectively solve real-world problems, the method of normal distribution approximation is used instead of the binomial distribution. The results of the model indicate that the computational time of the applied approximate model does not change with increasing the number of customers, and the model can determine the optimal price and production quantity. The advantage of the proposed model over other classic models is that it considers the inventory costs that have not yet been considered in price competition models with discrete selection. Graphical Abstract