Abstract：In thispaper, we focus our analysis on optimal decision in a supply chain consistingof one manufacturer and  retailers. We developthe profit-maximization models to obtain the optimal strategies in a supplychain under four different kinds of retailers’ price-setting power structures(i.e. retailers and manufacturer decide on retail price jointly, retailersdecide on retail price jointly, all retailer decide their individual retailprice simultaneously and independently, and one retailer wields more retailprice setting power than the others) and examine how the retailers’price-setting power structure affects the optimal wholesale price, optimalretail prices and profits of the manufacturer. In addition, we analyze theimpact of demand parameters on the optimal retail prices and sales volumes. Fromour analytical results, some practical insights and testable implications aresummarized.

Key Words：  Optimal strategy  Price-setting power  Supply chain management                                                                                                           

1 Introduction 

In supply chainmanagement, in order to improve aggregate performance, many supply chainsincreasingly investigate and compare their performance under centralized anddecentralized decision making (Bernstein and Federgruen, 2003). In a decentralizedsupply chain, there exists competition among supply chain members, each memberaims to achieve his own profit maximization by optimizing his own decision (forexample, pricing decision, sales volume decision, inventory and order quantitydecisions, etc.). In this paper, we focus our analysis on pricing decision in asupply chain consisting of one manufacturer and multiple retailers. We examinethe optimal strategies under four different retailers’ pricing power structuresand examine how the retailers’ pricing power structure affects the wholesaleprice, retail prices and profits of the manufacturer. In addition, we analyzethe impact of demand parameters on the optimal retail price and sales volumes.The problem is analyzed as a Stackelberg game in which the manufacturer acts asthe leader by announcing its wholesale price in advance and retailers act asfollowers by deciding their selling price and ordering quantity with thisinformation.