Noncooperative game theory in response surface methodology decision of pricing strategy in dual-channel supply chain

Abstract

Manufacturers utilize dual-channel supply-chain to cope with customer preferences. This structure allows manufacturer’s online facility and conventional retailer to deliver their products more efficiently. However, this mechanism also brings up anew internal competition between manufacturers and retailers. To observe the price effect within this system, response surface methodology is used to model the customer preference. The independent variables are online and retailer prices, while the dependent variables are price and cross-price sensitivities. To simulate proposed model into real-practice, game theory is employed. The strategies are the priority of each channel price and cross-price sensitivities. Based on this game model, a Nash equilibrium is obtained. This research proposes anovelty by means of the usage of response surface results as game theory payoffs to represent the uncertainty in a competitive environment. The integration of response surface model and game matrix can be used as managerial implication in predicting competitors’ behaviour.