Coordination and ripple effect of a competitive supply chain based on quantity-discount contract

In this paper we investigate a competitive supply chain which consists of a supplier and two competitive manufacturers who produce substitutive goods. We will examine whether a common wholesale price contract can coordinate a competitive supply chain in our paper. We conclude that this kind of contract does not work. So, we turn to a quantity-discount contract. In this contract, we discuss a decentralized decision of the supply chain at first. We find that the ripple effect of the whole supply chain is various when coefficient of discount k is among different ranges. Next, we consider that when k = 1/2b, the supply chain can be coordinated. That is, the optimal value of supply chain on the decentralized decision equals the one on the centralized decision. Nevertheless, ripple effect still exists in the supply chain even if the chain is coordinated based on the quantity-discount contract. To some extent, the competitive advantage due to coordination of supply chain maybe weakened or even eliminated by this effect.