STACKELBERG GAME BETWEEN A CUSTOMER AND COOPERATING SUPPLIERS: STABILITY AND EFFICIENCY

In this paper, we analyse a Stackelberg game between a customer and multiple suppliers faced with the proposition of a new product manufacturing. Suppliers apply base stock policy to replenish their inventories. The customer, being the leader, anticipates suppliers’ optimal base stock levels and allocates demand volume to suppliers in a way to maximize his own profit. In addition, the customer as well as each of the suppliers has the option of accepting or rejecting this new product affair according to its profitability. We let suppliers cooperate by forming coalitions. In order to study coalition structures stability, we endow suppliers with foresight. We show that the grand coalition may be unstable particularly when system load is relatively low. We show that suppliers’ profits are better when they cooperate if the system load is high. However, for weakly loaded systems, suppliers may find it better not to cooperate. By comparing to the centralized system performances, we show that decentralization of decisions may lead to the loss of the affair in quite a lot of situations even when suppliers cooperate, and that in the case of acceptance, the system inefficiency is considerable.