Nash Game Model for Optimizing Market Strategies, Configuration of Platform Products in a Vendor Managed Inventory (Vmi) Supply Chain for a Product Family

32 Pages Posted: 13 Mar 2009

See all articles by Yugang Yu

Yugang Yu

University of Science and Technology of China (USTC)

George Q. Huang

The University of Hong Kong

Date Written: February 2009 3,

Abstract

This paper discusses how a manufacturer and its retailers interact with each other to optimize their product marketing strategies, platform product configuration and inventory policies in a VMI (Vendor Managed Inventory) supply chain. The manufacturer procures raw materials from multiple suppliers to produce a family of products sold to multiple retailers. Multiple types of products are substitutable each other to end customers. The manufacturer makes its decision on raw materials’ procurement, platform product configuration, product replenishment policies to retailers with VMI, price discount rate, and advertising investment to maximize its profit. Retailers in turn consider the optimal local advertising and retail price to maximize their profits. This problem is modeled as a dual simultaneous non-cooperative game (as a Nash game) model with two sub-games. One is between the retailers serving in competing retail markets and the other is between the manufacturer and the retailers. This paper combines analytical, iterative and GA (genetic algorithm) methods to develop a game solution algorithm to find the Nash equilibrium. A numerical example is conducted to test the proposed model and algorithm, and gain managerial implications.

Keywords: supply chain management, nash game model, vendor managed inventory

JEL Classification: M11, R4, M, C61, C72, L81, L23

Suggested Citation

Yu, Yugang and Huang, George Q., Nash Game Model for Optimizing Market Strategies, Configuration of Platform Products in a Vendor Managed Inventory (Vmi) Supply Chain for a Product Family (February 2009 3,). ERIM Report Series Reference No. ERS-2009-009-LIS. Available at SSRN: https://ssrn.com/abstract=1358786

Yugang Yu (Contact Author)

University of Science and Technology of China (USTC) ( email )

96, Jinzhai Road
Hefei, Anhui 230026
China

George Q. Huang

The University of Hong Kong

Pokfulam Road
Hong Kong, Pokfulam HK
China

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