Vertically restrictive pricing in supply chains with price-dependent demand

Vertically restrictive pricing in supply chains with price-dependent demand

0.00 Avg rating0 Votes
Article ID: iaor20072728
Country: United States
Volume: 53
Issue: 6
Start Page Number: 485
End Page Number: 501
Publication Date: Sep 2006
Journal: Naval Research Logistics
Authors: , ,
Keywords: supply & supply chains
Abstract:

We examine the behavior of a manufacturer and a retailer in a decentralized supply chain under price-dependent, stochastic demand. We model a retail fixed markup (RFM) policy, which can arise as a form of vertically restrictive pricing in a supply chain, and we examine its effect on supply chain performance. We prove the existence of the optimal pricing and replenishment policies when demand has a linear additive form and the distribution of the uncertainty component has a nondecreasing failure rate. We numerically compare the relative performance of RFM to a price-only contract and we find that RFM results in greater profit for the supply chain than the price-only contract in a variety of scenarios. We find that RFM can lead to Pareto-improving solutions where both the supplier and the retailer earn more profit than under a price-only contract. Finally, we compare RFM to a buyback contract and explore the implications of allowing the fixed markup parameter to be endogenous to the model.

Reviews

Required fields are marked *. Your email address will not be published.