Profit allocation games in supply chains

The paper considers a supply chain where a number of agents are connected in some network relationship. Game theory is a very powerful framework for studying decision making problems, involving a group of agents in a supply chain. Allocation games examine the allocation of value among agents connected by a network. The ongoing actions in the supply chain are a mix of cooperative and non-cooperative behavior of the participants. The paper proposes a two-stage procedure for profit allocation based on combination of non-cooperative and cooperative game approaches. In the first stage, retailers meet customer price-dependent stochastic demand and seek to maximize total profit from the sale. Retailers are trying to align goals with producers on a contract basis and share the total profit with them. In the second stage, the cooperating producers allocate individual profits.