Particle swarm optimization for bi‐level pricing problems in supply chains

With rapid technological innovation and strong competition in hi‐tech industries such as computer and communication organizations, the upstream component price and the downstream product cost usually decline significantly with time. As a result, an effective pricing supply chain model is very important. This paper first establishes two bi‐level pricing models for pricing problems with the buyer and the vendor in a supply chain designated as the leader and the follower, respectively. A particle swarm optimization (PSO) based algorithm is developed to solve problems defined by these bi‐level pricing models. Experiments illustrate that this PSO based algorithm can achieve a profit increase for buyers or vendors if they are treated as the leaders under some situations, compared with the existing methods.