12. Supply Chain Network Competition in Prices and Quality

In this chapter, we develop static and dynamic competitive supply chain network models with multiple manufacturers and freight service providers. The manufacturers compete with one another in terms of price and quality of the product manufactured, whereas the freight service providers compete on price and quality of the transportation service that they provide for multiple modes. In contrast to the models in preceding chapters in which either demand price functions or fixed demands were utilized, here we use direct demand functions. In addition, in this chapter, we consider both product quality as well as freight service quality in consumer decision-making. Manufacturers and freight service providers maximize their profits while considering the consequences of the competitors’ prices and quality levels. Bounds on prices and quality levels are included that have relevant policy-related implications. The governing equilibrium conditions of the static model are formulated as a variational inequality problem. The underlying dynamics are then described, with the stationary point corresponding to the variational inequality solution. An algorithm, which provides a discrete-time adjustment process and tracks the evolution of the quality levels and prices over time is proposed, and convergence results given. Numerical examples illustrate how such a supply chain network framework, which is relevant to products ranging from high value to low value ones, can be applied in practice.