Managing buyer-seller system cooperation with quantity discount considerations

In this paper we explore cooperative relationships between two members in a simple buyer-seller system where the buyer is in a monopolistic position. We begin with a situation where the seller, as the leader, has the power to enforce his strategies on the buyer, but vice versa is not true. We then extend our analysis to a situation wherein the buyer can also influence the seller's decisions and address the issue of system cooperation. We illustrate the mutual incentives for cooperation and individual disincentives for cooperation. A quantity discount scheme is developed to implement a profit sharing mechanism for achieving equal division of additional cooperative system profits.