We analyze the issue of coordination within the framework of one supplier and two heterogeneous competing retailers. In this paper, we construct a two-stage game theoretical model: retailers’ nocooperative game and the Stackelberg game between supplier and retailers. The equilibriums show that the supplier can coordinate the supply chain throgh a simple price discrimination scheme, and the price difference is closely related with retailers’ market capacity, consumer’s price sensitivity between the retailers and the marginal production cost. With reasonable parameter values, we show that the retailer with bigger market capacity will set a lower price than the smaller retailer, and the supplier will charge her a lower wholesale price, which is in accordance the reality in retail industry. Therefore, our model provides an alternative explanation for the phenomenon. Besides, we also discuss the case when the supplier is prohibited  from price discrimination, and the loss of potential revenue  for the supply chain.