Discounting revisited: evolutionary perspectives on competition and coordination in a supply chain with multiple retailers

Abstract

We study the effect of appending regular, wholesale prices with a conventional, single price-break point quantity discount offered by a supplier to multiple retailers engaged in a Cournot–Nash competition. It is commonly observed in real-life supply chains that the retail price does not drop at once to the extent of the wholesale price discount. We capture this inertia with an evolutionary analysis which assumes that not every retailer immediately adopts a discounting strategy. We find that evolutionary dynamics then might alter the expected final outcome of the competition and show that the supplier will not be able to induce simultaneously both perfect coordination and perfect competition regardless of the type of retailers he is dealing with. Moreover, though the profits the supply chain gains are highest when the supplier perfectly coordinates it, we show that the retailers retain a non-zero profit margin in such a case. As a result, the supplier will not necessarily want to coordinate the supply chain, preferring instead to gain the same amount of profit from the perfect competition between the retailers attracted by the discount.