Pricing and investment strategy for digital technology in a supply chain

This study addresses the problem of the pricing and investment strategy for smart technology under a supply chain with one manufacturer and one retailer. The models are constructed to investigate the strategic choices of supply chain members for investing in digital/smart technology under three scenarios: the M-system, wherein only the manufacturer fully pays for the investment cost; the S-system, wherein the manufacturer and retailer share the investment cost; and the R-system, wherein the retailer fully pays for the investment cost. We formulate analytical models to determine the optimal wholesale price, retail price and investment strategy in a Stackelberg game setting. Our findings show that the S-system is the most appropriate choice for both the manufacturer and retailer. We also suggest the appropriate investment sharing ratio to achieve Pareto improvement under such an arrangement.