Abstract This study examines supply chain decisions when the supplier, who is unreliable, can initiate effort to improve its reliability and reduce its unit production cost. With the centralized decision model as benchmark, we focus on two decentralized decision models: a Stackelberg model (supplier as the leader) and a bargaining model. The supplier’s optimal effort and manufacturer’s order quantity in the bargaining model are equal to those in the centralized decision model and more than those in Stackelberg model. The supplier’s wholesale price in the bargaining model is smaller than that in the Stackelberg model. We find that the supply chain can be coordinated in bargaining model. The manufacturer prefers to bargain only if its bargaining power is strong enough. Accordingly, the supplier is more eager for the Stackelberg game if his bargaining power is weak.
2016, Vol. 13 
