Competition decision models between supply chains under linear demand and asymmetric information*

This paper discusses competition decision issues between two supply chains, in which each one has one manufacturer selling a substitutable product through one retailer who faces a linear price-sensitive demand. We assume that there exists asymmetric cost information between the two supply chains, and that the two chains as well as two members in each chain follow the Stackelberg game setting. We analyze four competition scenarios: both chains are decentralized; both chains are centralized; the leader chain is decentralized and the follower centralized; the leader is centralized and the follower decentralized. We find that the centralized decision is the dominant strategy for the leader, whereas for the follower the optimal strategy chosen depends on the production cost and the intensity of competition between two chains as well as on actions of the leader.