Pricing and Ordering Decisions in a Retailer Dominant Channel Involving a Third‐Party Logistics Provider

Abstract

This paper theoretically investigates pricing and ordering decisions in a supply chain system comprised of a dominant retailer, a manufacturer, and a third-party logistics (3PL) provider. The paper introduces the logistics service level as an additional variable and obtains the equilibrium pricing and ordering decisions of the supply chain members by applying game theory. Our analysis focuses on the effects of three sensitivity coefficients, i.e., the retailer’s order quantity to the manufacturer’s wholesale price, the 3PL’s logistics service price, and the logistics service level on equilibrium decisions. In addition, we explore the effect of the logistics investment cost and the market risk on equilibrium decisions. Finally, we present a numerical illustration to validate our theoretical results and explore their effects on channel performance.

A Review of Logistics Pricing Research Based on Game Theory

“…For the sake of analysis, they are grouped here into one category, which belongs to other dynamic games. After constructing a dynamic game model, some scholars used the reverse induction method to solve it [24,29,47,48,51]. In addition, Hou et al [78] adopted the Hotelling model to study the pricing strategies of logistics service platforms with competition and user distance preferences.…”

“…Most scholars identify the pricing problem of TPL in the supply chain system, and construct the pricing model between manufacturers and TPLs [22,23], or the pricing model between retailers and TPLs [24,25]. On this basis, some articles construct a three-tier pricing system consisting of retailers, manufacturers and TPLs [26][27][28][29][30][31]. In addition, with the expanding demand for logistics, the market has become increasingly competitive.…”

“…Wen et al [48] divided logistics service cost into fixed costs and uncertain costs when they investigated aviation logistics, and the uncertain cost was affected by oil price, weather and other conditions. Some scholars introduce the investment cost undertaken by LSP to improve the level of logistics services, which vary with the logistics service efforts [24,29,30,43,46,64,73]. In addition, scholars discuss other costs according to various logistics scenarios.…”

“…A higher logistics service level also means more logistics service efforts by enterprises, and service efforts will generate service costs. Therefore, some scholars believe that logistics service level will not only affect the market demand, but also the cost of logistics services [24,25,29,30,34,43,46,63,64]. When conducting research on service quality, some scholars have focused on a single indicator.…”

Cooperation and coopetition among retailers-third party logistics providers alliances under different risk behaviors, uncertainty demand and environmental considerations

“…With a GT approach, Mahmoudi et al ( 2020 ) examined the stability of a SC, as well as its impact on the profits of other players in the SC by incorporating 3PLs. Chen et al ( 2019 ) studied the pricing and order strategies of a third-party logistics provider and a predominant retailer. In order to calculate equilibrium orders and prices among SC members using GT, they used logistic service levels as an additional variable.…”