An Optimal Quantity Discounting Pricing Policy for Ameliorating Items

Recently, retailers who directly deal with poultry farmers increase in Japan. It therefore becomes necessary for the poultry farmers to deliver products to the retailers frequently in accordance with the retailers’ demand. The retailer purchases (raw) chicken meat from the poultry farmer. The stock of the poultry farmer increases due to growth, in contrast, the inventory level of the retailer is depleted due to the combined effect of its demand and deterioration. The poultry farmer attempts to increase her profit by controlling the retailer’s ordering schedule through a quantity discount strategy. We formulate the above problem as a Stackelberg game between the poultry farmer and the retailer to analyze the existence of the poultry farmer’s optimal quantity discount pricing policy which maximizes her total profit per unit of time. The same problem is also formulated as a cooperative game. Numerical examples are presented to illustrate the theoretical underpinnings of the proposed formulation.