Coordination of pricing and cooperative advertising for perishable products in a two-echelon supply chain: A bi-level programming approach

In this article the coordination of pricing and cooperative advertising decisions in one-manufacturer one-retailer decentralized supply chain with different market power for channel members is studied. The products are both perishable and substitutable. The problem is modeled as a nonlinear bi-level programming problem to consider both retailer and manufacturer decisions about prices and advertisement expenditure as well as the amount of retailer’s purchase. An Improved Particle Swarm Optimization through combining PSO by local search and diversification is proposed to solve the model. Finally, a numerical example is presented to analyze the effect of market scale. Also the role of the values of coefficient of price elasticity on decisions is studied via the numerical example. Numerical results indicate that to raise profit when the consumers are more price-sensitive, both the manufacturer and the retailer should decrease their prices and increase their advertising expenditure. In the larger market scale, the manufacturer and the retailer are even permitted to increase their prices to gain more profit.