Stackelberg differential game models in supply chain management

The dissertation consists of three essays. In the first essay, I analyze the dynamic interactions in a decentralized distribution channel, composed of a manufacturer and a retailer, to launch an innovative durable product (IDP) whose underlying retail demand is influenced by word-of-mouth from past adopters and follows a Bass-type diffusion process. The word-of-mouth influence creates a trade-off between immediate and future sales/ profits, resulting in a multi-period dynamic supply chain coordination problem. The analysis shows that the manufacturer and retailer may have conflicts regarding their trade-offs and preferences between immediate and future profits. I characterize equilibrium pricing strategies and the resulting sales and profit trajectories. Surprisingly, I find that the manufacturer, and sometimes even the retailer, is better off with a myopic retailer strategy in some cases. Furthermore, I propose that revenue sharing contracts can coordinate the IDP supply chain throughout the entire planning horizon. In the second essay, I extend the demand model by considering the impact of shelf space allocation on the retail demand of an IDP. I assume the retail demand to be an increasing and concave function of the merchandise displayed on the shelf. I include a linear cost of shelf space in the retailer's objective function. I characterize the optimal dynamic shelf space allocation and retail pricing policies for the retailer and wholesale pricing policies for the manufacturer. I find that a myopic retailer allocates the constant amount of shelf-space to the IDP over the selling horizon, whereas the shelf space allocated to the IDP by a far-sighted retailer varies over time. Consistent with the first essay, the manufacturer and the retailer have conflict over the retailer's profitability strategy. In the third essay, I review the Stackelberg differential game models that study such issues in dynamic environments as production and inventory policies, outsourcing decisions, channel coordination, and competitive advertising. I introduce the basic concepts of the basics of the Stackelberg differential games. I focus on the models that derive the Stackelberg equilibria in the area of supply chain management and marketing channels.