Pricing and lead time decisions in decentralized supply chains

Liming LIU, Mahmut PARLAR, Stuart X. ZHU

Research output: Journal PublicationsJournal Article (refereed)

96 Citations (Scopus)

Abstract

This paper studies a decentralized supply chain consisting of a supplier and a retailer facing price- and lead-time-sensitive demands. A Stackelberg game is constructed to analyze the price and lead time decisions by the supplier as the leader and the retailer as the follower. The equilibrium strategies of the two players are obtained. Using the performance of the corresponding centralized system as a benchmark, we show that decentralized decisions in general are inefficient and lead to inferior performance due to the double marginalization effect. However, further analysis shows that the decision inefficiency is strongly influenced by market and operational factors, and if the operational factors are dominating, it may not be significant. This shows that before pursuing a coordination strategy with retailers, a supplier should first improve his or her own internal operations.
Original languageEnglish
Pages (from-to)713-725
Number of pages13
JournalManagement Science
Volume53
Issue number5
DOIs
Publication statusPublished - 1 May 2007
Externally publishedYes

Fingerprint

Pricing
Lead time
Suppliers
Decentralized supply chain
Retailers
Factors
Follower
Benchmark
Stackelberg game
Inefficiency
Double marginalization

Keywords

  • Stackelberg game
  • customer utility
  • decentralized supply chains
  • decision inefficiency
  • double marginalization
  • operational and market factors
  • price- and lead-time-sensitive demand
  • pricing
  • promised delivery lead time

Cite this

LIU, Liming ; PARLAR, Mahmut ; ZHU, Stuart X. / Pricing and lead time decisions in decentralized supply chains. In: Management Science. 2007 ; Vol. 53, No. 5. pp. 713-725.
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Pricing and lead time decisions in decentralized supply chains. / LIU, Liming; PARLAR, Mahmut; ZHU, Stuart X.

In: Management Science, Vol. 53, No. 5, 01.05.2007, p. 713-725.

Research output: Journal PublicationsJournal Article (refereed)

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