Game theoretic models in supply chains

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Supply chain (SC) firms strive to coordinate their actions with the objective of obtaining maximum performance for the whole system. However, such efforts are threatened by competitive pressures originating at the horizontal (e.g., between retailers) and vertical (e.g., between manufacturers and retailers) levels of the SC. This research program develops new mathematical models and applies game-theoretic analysis to solve key managerial problems for supply chains related to the coordination, planning, and implementation of marketing decisions in competitive settings. Both static and dynamic game-theoretic analysis will be used to characterize equilibrium solutions for marketing decision variables in the SC context. Non-cooperative games will be solved and Nash or sequential (e.g., Stackelberg) equilibrium solutions will be obtained. For dynamic and differential games, preference will be given to closed-loop and feedback information structures that provide subgame perfect solutions. Sensitivity analyses will also be conducted to explore how the models' parameters affect equilibrium strategies. When appropriate, payoffs and decisions from different games/scenarios will be compared to study the influence of changes in business processes, market conditions and competitive entries. The computation of results will be conducted analytically or by numerical algorithms depending on the complexity of the model. Graduate students will be trained both in Business (marketing and SC management) and in Operations Research (optimization and game theory) to help complete this program. This research will advance existing knowledge by building new models that account for the impacts of marketing decision variables, competitive interactions, and dynamic effects on SC. Most research to date has studied complex SC problems using one-dimensional and static models focused on single-decision variables (e.g., price, production, promotion) or that ignore the future impact of these variables on the firms' profits. Such models are myopic and rigid, rather than integrated systems benefiting the long-term interests of the supply chain. It is therefore crucial to build new models that are more accurate representations of the complex business environment in which firms operate in order to recommend helpful strategies about how to compete and cooperate effectively in the marketplace. This program will also improve understanding of how marketing decisions can influence supply chain relationships and operations, which can significantly advance knowledge in the field and improve business practice, and thus help Canada's economic development. Insights from this research can help boost performance and reduce costs for SC firms, thereby guiding Canadian companies in improving their competitive position in global markets. They will also be helpful for governmental agencies in assessing competition effects on market dynamics and consumer welfare.