Supply chain games: modeling in a static framework

A supply chain can be defined as “a system of suppliers, manufacturers, distributors, retailers, and consumers where materials flow downstream from suppliers to customers and information flows in both directions” (Geneshan et. al. 1998). The system is typically decentralized which implies that its participants are independent firms each with its own frequently conflicting goals spanning production, service, purchasing, inventory, transportation, marketing and other such functions. Due to these conflicting goals a decentralized supply chain is generally much less efficient than the corresponding centralized or integrated chain with a single decision maker. Efficiency suffers from both vertical (e.g., buyer-vendor competition) and horizontal (e.g., a number of vendors competing for the same buyer) conflicts of interest.

How to manage competition in supply chains is a challenging task which comprises a variety of problems. The overall target is to make, to the extent possible, the decentralized chain operate as efficiently as its benchmark, the corresponding centralized chain. This particular aspect of supply chain management is referred to as coordination. This chapter addresses simple static supply chain models, competition between supply chain members and their coordination.