Seller-buyer system co-operation in a monopolistic market

This paper deals with a situation in which the buyer is a−in a monopolistic position with respect to the seller, and examines the issues and advantages of co-operation in a seller-buyer inventory control system. Game theory concepts from the foundation for the analysis of these issues. Initially, the relationship between the seller and the buyer is modelled as a non-cooperative two-stage game, and it is noted that the traditional EOQ formula is one of the results. Then, interactive game theory is utilized to address the problem of system co-operation as well as to determine optimal system order quantity-pricing strategies. Mutual incentives and motivations for system co-operation are also discussed. Among several alternative methods, the combination of an equal profit sharing role implemented via quantity discounting is demonstrated as the best mechanism for achieving system co-operation. Finally, the similarities and differences between the proposed model and those in the literature are discussed.