Equilibrium contracting strategy under supply chain to supply chain competition

Abstract

We consider two competing supply chains, each consisting of one dominant supplier and one retailer. The supplier offers either a consignment contract or a wholesale-price contract. If the retailer accepts the contract, she then decides the stocking level and the retail price of the product. The demand for each product is stochastic and price-sensitive. We show that the equilibrium contract strategy depends on the price sensitivity of the demand and the cost-share rate of the retailer. More specifically, for symmetric supply chains, we observe that consignment contract is the equilibrium strategy of the two supply chains when (1) the retailer’s cost-share rate is large, or (2) the retailer’s cost-share rate and price sensitivities are small; otherwise, wholesale-price contract is the equilibrium strategy of the two supply chains.