A game-theoretical cooperative mechanism design for a two-echelon decentralized supply chain

The paper analyses non-cooperative behaviour in a two-echelon decentralized supply chain, composed of one supplier and n retailers. For sufficient supply from the supplier, we build the approximate decision model of their base stock level, in which the suppliers' reactions are not considered, and its non-cooperative behaviour is obtained. For insufficient supply from the supplier, much more complicated non-cooperative behaviour is obtained, and we find that competition will occur between all the retailers as well as the supplier. In order to guarantee optimal cooperation in the system, several Nash equilibrium contracts are designed in echelon inventory games and local inventory games. (C) 2003 Elsevier B.V. All rights reserved.