An analysis of supply chain decisions with asymmetrical retailers : effects of disruptions and static service cost on coordination mechanism

The risk of demand or production cost disruption is one of the challenging problems in the supply chain management. This paper explores a generalized supply chain game model incorporating the possible disruptions. We find that a nonlinear Grove wholesale price scheme can fully coordinate such a supply chain even when both market demand and production cost are disrupted. The nonlinear Grove wholesale price scheme has three sides to coordinate the decision behavior of the players. One is that the mechanism can induce the retail pricing decided by the dominant retailer to be equal with that of the channel; the second is that the mechanism can induce fringe retailers to be not priced out of the market; the third is that the mechanism can ensure that the manufacturer uses minimum incentives to induce the dominant retailer to sell its product as well as providing the demand‐stimulating service. Disruptions from both demand side and production cost side may also affect the wholesale price, order quantity as well as retail price, and the share of the dominant retailer and the subsidy rate provided by the manufacturer are unity of opposites. We also find that it is optimal for the manufacturer to keep the original production plan when the joint‐disruption amount is sufficiently small.