Pricing strategy and order quantity allocation with price-sensitive demand in three-echelon supply chain

A key objective of this paper is to investigate the supply chain coordination frameworks to minimize the double marginalization effect in the case of price-sensitive demand. This paper investigates the impact of pricing strategy and ordering/production policy on the performance of a three-layer supply chain by using the Salop spatial model. The Nash Game approach determines the best price and order quantity to locally maximize the expected profits of the individual members in the decentralized supply chain. The total profit of the centralized structure is used as the benchmark to validate the channel member's decision on the selling price and order quantity. A numerical analysis has been conducted to confirm the theoretical results.