A joint venturing of single supplier and single retailer under variable price, promotional effort and service level

This paper analyses a two-echelon supply chain composed of one supplier and one retailer. The market demand is assumed to be uncertain and considered to be retail price dependent and dependent on the supplier's service level and on the retailer's promotional effort. The unsold items at the retailer are repurchased by the supplier at a price less than the sales prices. Conversely, the retailer encounters shortages because the demand is naturally uncertain. The optimal order quantity, selling price, promotional effort and service level are evaluated analytically as well as numerically for single period news-vendor-type demand patterns. The profit functions of the supplier and the retailer are analysed and compared in accordance with Stakelberg and integrated approaches. Computational results show that an integrated system is always beneficial for the members of the chain.