Article ID: | iaor20043420 |
Country: | United States |
Volume: | 5 |
Issue: | 4 |
Start Page Number: | 317 |
End Page Number: | 333 |
Publication Date: | Sep 2003 |
Journal: | Manufacturing & Service Operations Management |
Authors: | Tomlin Brian T. |
Keywords: | supply chain, contracts, capacity planning |
In this paper, we investigate price-only contracts in supply chain capacity procurement games. For a two-party supply chain, comprising a manufacturer and a supplier that both invest in capacity, we prove the existence of a class of coordinating price-only contracts that arbitrarily allocate the supply chain profit. Moreover, if the supplier's reservation profit is below a certain threshold, the manufacturer's optimal contract is a quantity-premium price-only schedule, that is, the average wholesale price per unit increases in the order size. We prove that the manufacturer prefers simple piecewise-linear quantity-premium contracts to linear contracts and show numerically that such contracts are highly efficient. We extend our results for piecewise-linear price schedules to