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The Scientific World Journal
Volume 2013, Article ID 315676, 12 pages
http://dx.doi.org/10.1155/2013/315676
Research Article

Coordinating a Supply Chain with Price and Advertisement Dependent Stochastic Demand

1Science College, Chongqing Jiaotong University, Chongqing 400074, China
2School of Economics and Business Administration, Chongqing Key Laboratory of Logistics, Chongqing University, Chongqing 400044, China
3School of Computer, Dongguan University of Technology, Dongguan, Guangdong 523808, China

Received 19 September 2013; Accepted 19 November 2013

Academic Editors: E. Ammar and P. A. D. Castro

Copyright © 2013 Liying Li et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This paper investigates pricing and ordering as well as advertising coordination issues in a single-manufacturer single-retailer supply chain, where the manufacturer sells a newsvendor-type product through the retailer who faces a stochastic demand depending on both retail price and advertising expenditure. Under the assumption that the market demand has a multiplicative functional form, the Stackelberg and cooperative game models are developed, and the closed form solution to each model is provided as well. Comparisons and insights are presented. We show that a properly designed revenue-cost-sharing contract can achieve supply chain coordination and lead to a Pareto improving win-win situation for channel members. We also discuss the allocation of the extra joint profit according to individual supply chain members’ risk preferences and negotiating powers.