Three-echelon supply chain coordination considering duopolistic retailers with perfect quality products

This paper explores channel coordination and profit division issues of a manufacturer–distributer–duopolistic retailers supply chain for a product, where the manufacturer supplies lotsize of the product that contains a random portion of imperfect quality item. In manufacturer-Stackelberg vertical game setting, the duopolistic retailers׳ three behaviours – Cournot, Collusion and Stackelberg are discussed. Besides analyzing the effect of imperfect quality product on optimal decisions, the paper depicts the hybrid contract mechanism so that all units quantity discount with franchise fee resolves channel conflict though unable to provide win–win outcome. For surplus profit division, the paper proposes two sequential bargaining processes- backward and forward, where outcome of a Nash bargaining is dependent on the previous. It is found that, for channel coordinated win–win profit, the manufacturer prefers Collusion, Stackelberg and Cournot, while the retailer prefers the reverse and both prefer backward sequential bargaining. But, the distributers preference depends on the target profit that it sets during the bargaining process. The proposed mechanisms are illustrated by a numerical example.