Coordinating of Pricing and Quality Strategies by Contracts in O2O Supply Chain With Stochastic Reference Quality Effect

A coordination of dynamic pricing and quality investment problem with consideration of reference quality effect is investigated, a Stackelberg game model is established with the supplier as the leader and the retailer as the follower. Both centralized and decentralized supply chain systems are analyzed and their equilibrium solutions are derived in term of the Hamilton-Jocobi Bellman (HJB) equation. The wholesale price (WP), cost-sharing (CS) and two-part tariff (TP) contracts are utilized in the decentralized system to coordinate the O2O supply chain. The differences in optimal coordination strategies between stochastic reference quality effect and deterministic reference quality effect are explained. Numerical experiments are account for the randomness of reference quality on the optimal coordination strategies of the O2O supply chain. Our research complements the existing research stream in coordinating pricing and quality investment effort decisions under the O2O supply chain environment by incorporating the consumers' stochastic reference quality effect.