Pricing and Inventory Policy for Deteriorating Item in a Two-Echelon Supply Chain: A Stackelberg Duopoly Game Approach

Pricing decisions and inventory policies are the two most important factors for a supply chain system. This paper studies an inventory system for a two-layered supply chain for the deteriorating item where demand correlated to selling price and time. Both centralized and decentralized case have been analyzed for a common supply chain system consisting of a single supplier and a single retailer. There is a unique optimal order cycle and selling price for retailers to maximize its profit, and an optimum wholesale price for the supplier to maximize its profit. A Stackelberg duopoly game approach is used to analyze the optimum solutions and profit of each channel member in the decentralized case. Finally, a numerical example is analyzed to validate the model and sensitivity analysis is presented to illustrate the effectiveness of the major parameters.