Coordination of Pricing Decisions in multiple-product supply chains

This paper addresses the pricing decisions of the decentralized assemble-to-order system. We consider an assemble-to-order system consisting of two substitute products and three components manufactured by different suppliers. Demand for the products is price-sensitive. The final selling prices for the products are jointly determined by firms in the system. We study the system under both centralized and decentralized decision making situations. For the centralized system, we demonstrate that there exists a unique optimal pricing solution. For the decentralized system, we show that there exists a unique Nash equilibrium in the players' pricing game. We show that the decentralized system can be effectively coordinated and the system performance can be improved with a simple profit-sharing contract. Finally, numerical examples are provided.