PRICING AND ORDERING DECISIONS OF TWO SUBSTITUTABLE PRODUCTS UNDER SUPPLY DISRUPTION RISK

Date

2024-9

Author

Zengin, Mehmet Sencer

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In this study, we analyze the pricing and ordering decisions in a supply chain that consists of a manufacturer and a retailer. The manufacturer sells two substitutable products to a retailer. The flow of one of the products is stable due to the close relationships established over time. This product may be substituted by the other one which has a higher quality. However, the higher quality product is newly launched and its supply is subject to disruption. It is not supplied at all if a disruption occurs. Considering that the wholesale and retail prices of the stable product are exogenous, our objective is investigating how the pricing and ordering decisions of the products are taken under the disruption risk. The decision sequence involve three stages: Firstly, the manufacturer determines the wholesale price of the new product. Then, the retailer determines the order quantities of both products. After the disruption status of the new product is unveiled, the retailer determines the retail price of this product if no disruption occurs. We investigate the role of product substitution to mitigate the negative effects of supply disruption risk in the study. We also explore the effects of some factors like disruption probability, product quality valuation of customers, and the quality and price attributes of the two products on the optimal strategies through a numerical study.

Subject Keywords

Supply Disruption, Substitutable Products, Game Theory

URI

https://hdl.handle.net/11511/111380

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Graduate School of Natural and Applied Sciences, Thesis