Manufacturer's optimal preselling discount rate with sufficient initial working capital

This paper considers a supply chain consisting of one manufacturer and one retailer and models their interactions as a three-stage Stackelberg game with the incorporation of a preselling program, and derives the retailer's optimal advance ordering quantity and the manufacturer's optimal discount rate and production quantity. According to the analysis, it is shown that although he may own sufficient initial working capital, it is still possible for the manufacturer to provide a discount rate in the preselling stage in order to maximize his expected total profit.