Equilibrium Pricing and Power Design in Hybrid Supply Chains: A Stackelberg Game Approach

This paper investigates a service-oriented hybrid supply chain involving a manufacturer, a service provider, and an integrator, where product demand is jointly influenced by service level and retail price. To address the increasing dominance of service providers in value creation, we construct two Stackelberg game models under different power structures: manufacturer-dominant and service-provider dominant. The models characterize the equilibrium pricing and service decisions across supply chain members considering service sensitivity. Analytical results indicate that the service-provider dominant structure outperforms in high-sensitivity markets, resulting in higher service levels, demand, and overall supply chain profits. Numerical experiments further validate the theoretical findings and offer managerial insights into the design of power structures in service-integrated supply chains. The results offer guidance for optimizing pricing and service strategies in complex, service-sensitive environments.