Optimal Pricing of competing retailers under uncertain demand-a two layer supply chain model

The paper studies a two-echelon supply chain comprising of one manufacturer and two competing retailers with sales price dependent demand and random arrival of the customers. The manufacturer acts as the supplier who specifies wholesale price for the retailers and the retailers compete with each other announcing different sales prices. We analyse a single-period newsvendor type model to determine the optimal order quantity, considering the competing retailers’ strategies.The unsold items at the retailers are buyback to the manufacturer at less price than the sales prices.On the other hand, the retailers face shortages as the demand is uncertain in nature. The profit functions of manufacturer and two retailers are analyzed and compared following Stakelberg, Bertrand, Cournot–Bertrand and integrated approaches. Moreover, distribution-free model is analyzed for integrated profit of the chain. A numerical example is given to illustrate the theoretical results developed in each case. Computational results show that it is always beneficial in integrated system for the members of the chain.