Retailing and pricing decisions in a three-tier fabless semiconductor supply chain with stochastic consumption rate and channel power structures under sustainability measures

Abstract

This study investigates the trade-off between sustainability measures and pricing strategies within a three-tier fabless semiconductor supply chain. We examine diverse configurations of channel power to identify the optimal power structure when integrating sustainability measures into the semiconductor foundry. The Stackelberg game, Vertical Nash game, and Mean-Variance analysis are employed to model the complex dynamics among channel partners. The findings indicate that for a specific threshold limit of manufacturing and sustainability costs, implementing sustainability measures not only increases the optimal price for foundry but also enhances the margin and sales volume for the fabless company, leading to improved profits for all chain partners. Examining channel power structures reveals the threshold limit of sustainability cost which maximise the profit for the channel leader and the channel follower. Additionally, lower price elasticity favours maximum profits under channel leadership, whereas higher price elasticity values result in higher optimal profits when both partners share comparable channel power. The study also identifies the significant influence of partners’ risk aversion on overall profitability and offers valuable insights for practicing managers in the fabless supply chain, providing guidance on optimising pricing strategies, navigating channel power dynamics, considering price elasticity, and managing risk aversion to enhance overall profitability. © 2024 Informa UK Limited, trading as Taylor & Francis Group.