A Supply Chain Equilibrium Model with General Price-Dependent Demand. (2020)

• Record Type: Journal Article
• Authors: Hamdouch, Younes; Ghoudi, Kilani
• Is Part Of: Operations research perspectives. Volume 7(2020)
• Publication Date: 2020
• Subjects: Supply chain -- network equilibrium -- newsvendor pricing problem -- variational inequality -- price-dependent demand -- general demand; Operations research -- Periodicals; Management science -- Periodicals; 658.403405
• DOI: 10.1016/j.orp.2020.100165
• Languages: English
• ISSNs: 2214-7160

Abstract

Highlights: Develop a new supply chain equilibrium model. Consider extended price-dependent stochastic demand functions and price competition among retailers. Propose a new variational inequality formulation. Generate interesting practical implications for managers and decision makers. Abstract: The concept of supply chain equilibrium has been widely employed to solve real-life cases. Under this concept, decisions makers move simultaneously and compete in a noncooperative manner to achieve a supply chain network equilibrium. This paper proposes a supply chain network equilibrium model consisting of multiple raw material suppliers, manufacturers and retailers. Unlike previous studies, we assume that the demand for the product at each retail outlet is modeled as general stochastic functions of price that encompass additive-multiplicative demand models used in previous studies. Under general price-dependent demand functions, we derive the optimality conditions of suppliers, manufacturers and retailers, and establish that the governing equilibrium conditions can be formulated as a finite-dimensional variational inequality problem. The existence and uniqueness of the solution to the variational inequality are examined. A sensitivity analysis and a series of numerical tests are conducted to illustrate the analytical effects of demand distribution, model parameters, demand level and variability on quantity shipments, prices, and expected profits. Managerial insights are reported to show the impact of different types of demand functions and model parameters on the equilibrium solutions.