Investigation on Stackelberg Game for Product Renewal in Supply Chain

The paper studied the process of product renewal in a supply chain, which is composed of one manufacturer and
one retailer. There are original product and renewal product in the supply chain. A market share shift model for
renewal product was firstly built on an increment function and a shift function. Based on the model, the
decision-making plane consisting of two variables was divided into four areas. Since the process of product
renewal was divided into two stages, Stackelberg-Nash game model and Stackelberg-merger game model could
be built to describe this process. The optimal solutions of product pricing strategy of two games were obtained.
The relationships between renewal rate, cost, pricing strategy and profits were got by numerical simulation.
Some insights were obtained in this paper. Higher renewal rate will make participants’ profits and total profit
increase at the same margin cost. What is more important, the way of the optimal decision-making of the supply
chain(SC) was that renewal product(RP) comes onto the market with a great price differential between original
product (OP) and RP.