Demand uncertainty and returns policies for a seasonal product: An alternative model

Marvel and Peck considered the following seasonal-product problem: A manufacturer sets wholesale price ($pw/unit) and return credit ($r/unit); the retailer then sets retailer price ($pR/unit) and order quantity (Q). How should the manufacturer set pw and r? Demand uncertainty consists of two components: ‘valuation’ and ‘customers' arrivals’. Our more realistic models reveal effects unobservable from Marvel–Peck's. E.g.: (i) Setting r > 0 benefits the manufacturer much more than the retailer. (ii) ‘Valuation’ (but not ‘customer-arrival’) uncertainty is imperative for the retailer; without it, the manufacturer can set pw and r such that he reaps most of the profits.