Competitive pricing and seed node selection in a two-echelon supply chain

• This study integrates Social Network Analysis (SNA) into pricing decisions within a two-echelon supply chain using a Stackelberg game model. • It combines seed node selection for viral marketing with pricing strategies to maximize retailer profits by leveraging social network structures. • The study models demand based on individual product valuations and social influences rather than a predefined demand function, making it suitable for innovative products. • The research shows that the number of seed nodes and their influence thresholds significantly affect demand and pricing strategies, with more seed nodes not always leading to higher profits. • The paper uses a simulated annealing algorithm to solve the bi-level model efficiently, reducing computation time while maintaining profit maximization accuracy. This paper presents a bi-level game model for pricing in a supply chain where the manufacturer (He) is the leader, and the retailer (She) is the follower. The leader decides on the wholesale price, and the follower decides on the selling price and selects seed nodes. The main idea of the model is that the marketing strategy used for promoting the product is focused on giving free samples to potential customers. Hence, the importance of analyzing a social network becomes evident. To maximize her profit, the retailer decides based on three factors: first, the leader's decision about wholesale price; second, the social network structure, which is critical for selecting the seed nodes; and third, people's valuation of the product. Therefore, a bi-level Mixed-Integer Nonlinear Programming model is developed to consider the social binds between potential customers. To solve this model, we employ a meta-heuristic algorithm. Finally, the effect of the model's parameters on decision variables and the objective functions is discussed. Based on the analysis and discussions, the production cost has a prominent impact on the players’ decisions and profits. Furthermore, instead of spending all the marketing budget on increasing seed nodes, it is suggested that they be spent on market research and improving good publicity. Moreover, deciding whether the players want to maximize the profit or market penetration is required before diving into decision-making.