Automotive supply chain with government intervention: A game theory approach

The automotive industry is one of the most competitive industries globally. Hence, a proper pricing policy is vital to be able to compete. This paper develops an automotive supply chain consisting of one manufacturer and one retailer, with two types of one product (Basic and Premium). The Premium type of the product is equipped with extra features and technologies to convince customers to purchase it at a higher price, while the Basic one without these features is sold at a lower price. Furthermore, the manufacturer is intervened by the government regulations which results in receiving subsidies or paying taxes. This paper develops a mathematical model to maximize profit in both centralized and decentralized systems. The model examines the effects of feature and technology level, as well as advertisement on vehicle pricing. To examine the proposed approach and model, several numerical examples are applied. The results reveal that the model can increase the manufacturer’s profit by considering the government benefits, as well as the retailer’s profit. Finally, some managerial implications are developed by a sensitivity analysis of the main parameters.