Optimizing Wholesale and Retail Prices, Quality and Marketing Improvement Efforts in a Closed-Loop Supply Chain Using a Game Theory

Document Type : Research Paper


1 School of Industrial Engineering, College of Engineering, University of Tehran, Tehran, Iran

2 Department of Industrial Engineering, South Tehran Branch, Islamic Azad University, Teharn, Iran


This paper develops a closed-loop supply chain including one manufacturer, one retailer and a third party, in which the manufacturer produces a product under appropriate quality and sells it through a retailer in the market. The retailer pays the expense of marketing effort and a third party collects the used products from consumers and sends to the manufacturer. The manufacturer remanufactures the recived second hand products such that the quality of the remanufactured items bacome as same as the new ones. We use two different Stackelberg games, and the decision vraibles of the model are the quality level, marketting expenditure, whole sale and retail prices. After investigating the concavity of the profit functions, the optimal closed-form solutions for all decision varaibales are derived. Subsequently, to show the applicability of the proposed models, a numerical example is presented and a sensitivity anslysis is then conducted to investigate the effects of key parameters on the values of decision variables.


Main Subjects

  1. Huang, M., Song, M., Lee, L.H., Ching, W.K., (2013). “Analysis for strategy of closed loop supply chain with dual recycling channel.” International journal of production economics, Vol. 144, No. 2, PP. 510-520.
  2. Giovanni, P.D., (2011). “Quality improvement vs. advertising support: Which strategy works better for a manufacturer?.” European journal of operational research, Vol. 208, No. 2, PP. 119-130.
  3. Savaskan, R.C., Bhattacharya S., Van Wassenhove, L.N., (2004). “Closed loop supply chain models with product remanufacturing.” Management science, Vol. 50, No. 2, PP. 239–252.
  4. Savaskan, R.C. and Van Wassenhove L.N., (2006). “Reverse channel design: the case of competing retailers.” Management Science, Vol. 52, No. 1, PP. 1–14.
  5. Chung, S.L., Wee, H.M., Yang, P.C., (2008). “Optimal policy for a closed-loop supply chain inventory system with remanufacturing.” Mathematical and computer modelling, Vol. 48, No. 5-6, PP. 867-881.
  6. Gurnani, H. and Erkoc, M., (2008). “Supply contracts in manufacturer–retailer interactions with manufacturer-quality and retailer effort induced demand.” Navalresearch logistics, Vol. 55, PP. 200–217.
  7. Almehdawe, E. and Matin, B., (2010). “Vendor managed inventory with a capacited manufacturer and multiple retailer: retailer versus manufacturer leadership.” International journal of production economics, Vol. 128, No. 1, PP. 292-302.
  8. Wang, S., Zhou, Y., Wang, J., (2010). “Supply chain coordination with two production models and random demand depending on advertising expenditure and selling price.” International journal of systems science, Vol. 41, PP. 1257-1272.
  9. Ferrer, G. and Swaminathan, J., (2010). “Managing new and differentiated remanufactured products.” European journal of operational research, Vol.203, No. 2, PP. 370-379.
  10. Wei, J., and Zhao, J., (2011). “Pricing decisions with retailer competition in a fuzzy closed-loop supply chain.” Expert systems with application, Vol. 38, No. 9, PP. 11209-11216.
  11. Lu, J.C., Tsao, Y.C., Charoensiriwath, C., (2011). “Competition under manufacturer service and retail price.” Economic modelling, Vol. 28, No. 3, PP. 1256-1264.
  12. Mitra, S., (2012). “Inventory management in a two-echelon closed loop supply chainwith correlated demands and returns.” Computers & industrial engineering, Vol. 62, No. 4, PP. 870-879.
  13. Tarokh, M.J., Esmaeli, M., Torabi, Sh., (1391). “An integral optimization model for designing reverse logistics network under uncertainty”, Journal of industrial engineering, No. 2, PP. 159-173.
  14. Taherifard, M., Teymori. E., Shaghaghi, E.M., (1391). “Decision strategy under stackelberg policy and kono model in a two stage supply chain”, Journal of Industrial Management, (Published by Islamic Azad University - Sanandaj Branch), No. 19.
  15. Li, Y., Xu, L., Li, D., (2013). “Examining relationships between return policy, product quality and pricing strategy in online direct selling.” International Journal of Production Economics, Vol. 144, PP. 451–60.
  16. Govindan, K., Popiuc, M.N., Diabat, A., (2013). “Overview of coordination contract within forward and reverse supply chain.” Journal of cleaner production, Vol. 47, PP. 319-334.
  17. Choi, T.M., Li, Y., Xu, L., (2013). “Channel leadership, performance and coordination in closed loop supply chain.” International journal of production economics, Vol. 146, No. 2, PP. 371-380.
  18. Ye, G. and Mukhopadhyay, S.K., (2013). “Role of demand side strategy in quality competition.” International journal of production economics, Vol. 145, No. 2, PP. 696-701.
  19. Yang, P.C., Chung, S.L., Wee, H.M., Zahara, E., Peng, C.Y., (2013). “Collaboration for a closed-loop deteriorating inventory supply chain with multi retailer and price-sensitive demand.” International journal of production economics, Vol. 143, No. 2, PP. 557-566.
  20. Ma, P., Wang, H., Shang, J., (2013). “Contract design for two-stage supply chain coordination: integration manufacturer-quality and retailer-marketing effort.” International journal of production economics, Vol. 146, No. 2, PP. 745-755.
  21. Ma, P., Wang, H., Shang, J., (2013b). “Supply chain channel strategies with quality and marketing effort-dependent demand.” International journal of production economics, Vol. 144, PP. 572-581.
  22. Maiti, T. and Giri, B.C., (2014). “A closed loop supply chain under retailer price and product quality dependent demand.” Journal of Manufacturing Systems.
  23. Giri, B.C. and Sharma, S., (2014). “Manufacturer’s pricing strategy in a two-level supply chain with competing retailers and advertising cost dependent demand.” Economic modelling, Vol. 38, PP. 102-111.
  24. Moghaddam, S.V. and Mobini, A. (2014). “Pricing approach in a reverse supply chain.” Proceedings of the CIE44 and IMSS’14 international conference on computers & industrial engineering, 14-16 October, Istanbul, Turkey, PP. 2085-2091.
  25. El Ouardighi, F., (2014). “Supply quality management with optimal wholesale price and revenue sharing contract: a two-stage game approach.” International journal of production economics.
  26. Aust, G., Buscher, U., (2014). “Vertical cooperative advertising and pricing decisions in a manufacturer-retailer supply chain: a game theoretic approach.” European journal of operational research, Vol. 223, PP. 473-482.
  27. Ma, J. and Wang, H., (2014). “Complexity analysis of dynamic noon-cooperative game models for closed loop supply chain with product recovery.” Applied mathematical modelling, Vol. 38, No. 23, PP. 5562-5572.
  28. Wei, J., Govindan, K., Li, Y., Zhao, J., (2015). “Pricing and collecting decisions in a closed loop supply chain with symmetric and asymmetric information.” Computers & operations research, Vol. 54, PP. 257–265.
  29. Jørgensen, S. and Zaccour, G., (1999). “Equilibrium pricing and advertising strategies in a marketing channel.” Journal of optimization theory and applications, Vol. 102, No. 1, PP. 111–125.