Game Analysis of a Cooperation Mechanism in a Two-Echelon Supply Chain

Game theory and analytical method are utilized to analyze the cooperative relationship in a supplier-retailer supply chain when the supplier offers a rebate mechanism to retailer. Under the action of the rebate mechanism, assuming that the information is symmetrical and the demand is deterministic but price-sensitive, the supplier and the retailer act independently and rationally, each trying to maximize their earnings. On this basis, the optimal pricing and advertising of the two sides will be the result of a Stackelberg game, in which, the supplier is a leader and the retailers are followers. Analysis showed that the retail price of the product in non-cooperative Stackelberg game is higher than in the cooperative game, while the advertising investment in the non-cooperative Stackelberg game is lower than in cooperative games. The earnings of the system under cooperation gains more than non-cooperation, and the gap decrease and increase respectively with the market demand elasticity of the retail price and advertising.