Pricing Models for a Two-echelon Supply Chain with Substitute and Complementary Products Considering Disruption Risk

Document Type : Research Paper


1 Industrial Engineering Department, Faculty of Engineering, Kharazmi University,Tehran, Iran

2 Business Department, Faculty of Economics, Administrative and Social Sciences, Nisantasi University, Istanbul, Turkey

3 Mechanical, Automotive & Materials Engineering department, Windsor University, Windsor, Canada


Nowadays in markets, products are categorized as an independent, substitute, and complementary ones. Being a complementary product could impact the demand for related products, so the pricing of these items could affect the other ones’ demand. To investigate these effects, here a two-echelon supply chain with three manufacturers and a distributor for two substitutes and one complimentary product simultaneously has been investigated. The relationships between the manufacturers and the distributer are modeled by both cooperative and non-cooperative games. Due to political discussions, equipment failure, and natural disasters, our supply chain would confront disruption between the distributor and the manufacturers, which brings dissatisfaction, and the orders could not be fulfilled by manufacturers completely. Above mentioned issues bring variations in wholesalers and distributor prices. The optimal prices for both have been determined in our proposed model by taking advantage of game theories as well. Finally, the effects of key parameters on supply chain decisions and profit functions were investigated and numerical examples were developed to show the performance of the model, and sensitivity analysis was performed on important parameters to derive managerial insights.


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