Optimizing shipment, ordering and pricing policies in a two-stage supply chain with price-sensitive demand

In this paper we focus on a two-stage supply chain consisting of one vendor and one buyer. We develop an integrated production-inventory-marketing model to determine the relevant profit-maximizing decision variable values. The model proposed is based on the joint total profit of both the vendor and the buyer, and it finds out the optimal ordering, shipment and pricing policies. We are able to ascertain the optimal decision variable values employing an analytical solution procedure. The numerical evidence suggests that it is more beneficial for the buyer and the vendor to cooperate with each other when the demand is more price sensitive. (C) 2008 Elsevier Ltd. All rights reserved.