A Game-theoretical Capacity Allocation Scheme Design under Seasonal Demand

In this paper, we study capacity allocation under seasonal demand in two-echelon supply chain. In this supply chain the supply and demand is seriously out-off-balance. In detail the capactiy of the supplier decreases in high-demand state while the capacity can be fully released in low-demand state. Hence a game-theoretical capacity allocation scheme is proposed to increase retailers' orders in low-demand state. This allocation scheme based on turn-and-earn uses orders in low-demand state to allocate capacity in high-demand state. Our competitive game is base on Nash equilibrium. A contract based on Nash equilibrium is designed to guarantee a reasonable allocation of interests between the supplier and retailers by changing incentives. We show that turn-and-earn allocation does coordinate the system and with cooperation both the supplier and the retailer can both benefit from it. A numerical study is conducted.