Multi-channel price and service level competition with the impact of coordination contracts

Abstract In this paper, we consider a two-echelon supply chain model with a single manufacturer and multiple retailers handling a single product. The demand at the retailers’ end is dependent on the retail price and service level of the retailer. The retailers compete with each other over the retail price and the service level. At first, we study the centralized and the decentralized systems, and then try to coordinate the decentralized system with several contracts. We use the service cost sharing contract, retail fixed markup (RFM) contract and RFM plus service cost sharing contract in our model. Our study establishes that among the aforementioned contracts, the RFM strategy yields the most profit and come out as the most beneficial for all parties involved. Finally, we validate the proposed model with a numerical example. Through sensitivity analysis, we illustrate the impact of different model parameters on the optimal decisions.