Trading system design based on cooperative game for a two-level supply chain

Supply chains of modular consumer electronics, such as LCD TVs, PCs, and smart phones have gradually changed from traditional vertical integration to horizontal division of labor. Almost all the manufacturers of consumer electronics in Japan have changed their sales channels from the affiliated electronics stores to large-scale retailers. Therefore, their attentions on sales planning have been moved to negotiation with such large-scale retailers on trading price and volume. Since the market power deviation, comparing with the retailers, manufacturers are getting difficult to achieve enough profits with the contract terms decided by negotiation. Information asymmetry, market power deviation and pursuing self-interest only are considered as the main reasons of Double Marginalization (DM) phenomenon. In this study, after discussing the DM in a two-level supply chain which consists of a consumer electronics manufacturer and a retailer, a trading system based on cooperative game is proposed to eliminate the DM in order to help both players to build a win-win relationship. Effectiveness on total profit of whole supply chain and profit of each player with the proposed trading system are confirmed by numerical experiments. Products features as well as cost structurers features of manufacturer and retailer are considered to discuss the applicability.