Abstract:

The learning effect refers to the phenomenon where production costs decrease with time as a result of repeated and accumulated production activities. Considering the significant role of production quantity on the learning effect， the additional products in the supply chain may be ordered or produced--which are known as strategic inventory. In order to accumulate production experience， the manufacturer may reduce the wholesale price to stimulate the retailer to order more and the retailer may hold the strategic inventory， moreover， to bargain with the manufacturer in the future. Therefore， it is necessary to study the retailer’s strategic inventory behavior in a supply chain with learning effect， which raises the following questions： What are the firms’ strategic inventory holding and order decisions under the existence of the learning effect？ How do the learning rate and strategic inventory affect the equilibrium decisions and profits of supply chain members？ Does the learning effect change the role of strategic inventory？To address these questions， a two-period Stackelberg game supply chain model consisting of a manufacturer with learning effect as the leader and a retailer who may strategically hold inventory as the follower is established. The trend of the firm’s prices and profits is explored over time. It also investigates how strategic inventory and the learning effect affect decisions and profits. The profits of the firms with strategic inventory and those without strategic inventory has been compared， and the impacts of the learning effect on strategic inventory are examined.By examining the impact of key factors such as the learning effect and the strategic inventory on the supply chain equilibrium decisions， it is observed that the retailer holds strategic inventory when the inventory holding cost is reasonable. However， the retailer can only benefit from his own strategic inventory behavior only when the inventory holding cost is low， and the retailer adopts a loss strategy in the first period to maximize the overall profit. The enhancement of the learning effect hampers the retailer's strategic inventory when both the learning rate and inventory holding cost are low. These conclusions can provide theoretical guidance for the future research on strategic inventory and learning effects. Furthermore， firms can also gain practical experience from our study.

Key words: cost learning effect, strategic inventory, dynamic pricing, inventory holding cost