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2021 ; 101
(ä): 102279
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Competitive pricing of substitute products under supply disruption
#MMPMID32836689
Gupta V
; Ivanov D
; Choi TM
Omega
2021[Jun]; 101
(ä): 102279
PMID32836689
show ga
There has been an increased interest in optimizing pricing and sourcing decisions
under supplier competition with supply disruptions. In this paper, we conduct an
analytical game-theoretical study to examine the effects of supply capacity
disruption timing on pricing decisions for substitute products in a two-supplier
one-retailer supply chain setting. We investigate whether the timing of a
disruption may significantly impact the optimal pricing strategy of the retailer.
We derive the optimal pricing strategy and ordering levels with both disruption
timing and product substitution. By exploring both the Nash and Stackelberg
games, we find that the order quantity with the disrupted supplier depends on
price leadership and it tends to increase when the non-disrupted supplier is the
leader. Moreover, the equilibrium market retail prices are higher under higher
levels of disruption for the Nash game, compared to the Stackelberg game. We also
uncover that the non-disrupted supplier can always charge the highest wholesale
price if a disruption occurs before orders are received. This highlights the
critical role of order timing. The insights can help operations managers to
proper design risk mitigation ordering strategies and re-design the supply
contracts in the presence of product substitution under supply disruptions.