Negotiation between MA and SFj Sample Clauses

Negotiation between MA and SFj. MA and SFj make their decisions sequentially in this part. They negotiate on the wholesale price, the quantity of the order, and the lead time. SFj wants to increase the wholesale price, quantity and lead time to improve his profit. How- ever, MA wants to decrease the wholesale price to increase his profit. Therefore, the main point of this part is to find a balance between the profits of SFj and MA. The negotiation between MA and SFj can be modeled as a Stackelberg game, where MA is indicated as a leader and SFj can be seen as a follower. In the formulation of a Stackelberg game, it is usually assumed that players’ profit functions are common knowledge [10]. Thus, MA can use this common knowl- edge to construct SFj’s most profitable responses to all the possible decisions. Then, MA’s profit function from corresponding decisions based on all the SFj’s responses can be explored. In the end, MA makes a decision which can maximize his profit. SFj then has a best response to matching the decision. We assume that both MA and SFj are rational, thus, they do not want to deviate from this set of decisions, which is called Stackelberg equilibrium in the game theory. The strategies of MA and SFj are determined in the following sections.