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.

nash game model, supply chain management, vendor managed inventory
Optimization Techniques; Programming Models; Dynamic Analysis (jel C61), Noncooperative Games (jel C72), Organization of Production (jel L23), Retail and Wholesale Trade; Warehousing; e-Commerce (jel L81), Business Administration and Business Economics; Marketing; Accounting (jel M), Production Management (jel M11), Transportation Systems (jel R4)
Erasmus Research Institute of Management
hdl.handle.net/1765/15029
ERIM Report Series Research in Management
ERIM report series research in management Erasmus Research Institute of Management
Erasmus Research Institute of Management

Yu, Y, & Huang, G.Q. (2009). Nash Game Model for Optimizing Market Strategies, Configuration of Platform Products in a Vendor Managed Inventory (VMI) Supply Chain for a Product Family (No. ERS-2009-009-LIS). ERIM report series research in management Erasmus Research Institute of Management. Erasmus Research Institute of Management. Retrieved from http://hdl.handle.net/1765/15029