The Supply Chain Impact of Decentralized Purchasing

Consider a supply chain consisting of a supplier who produces product at a cost per unit of s and then chooses a wholesale price w to sell the product to a buyer. The buyer, in turn, faces a retail demand curve, with the 

Suppose the supplier and buyer were making decisions independently to maximize their respective profits. The supplier quotes a wholesale price ui, and the buyer chooses a retail price p and buys the required quantity q. The supplier s profit is described as (w - s)q while the buyer s profits are p - w)q. Given a wholesale price w, the buyer will choose a retail a + w 

However, consider a centralized supply chain, with the buyer and supplier maximizing their joint profit. For such a supply chain, the associated a s a — s 

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