Manufacturer’s pricing strategies in a single-period framework under price-dependent stochastic demand with asymmetric risk-preference information

This paper considers a single-period problem designed to analyse the pricing strategy of a manufacturer who does not possess full information about the retailer’s risk-preferences. The retailer, who faces a price-dependent stochastic demand, is a maximizer of the risk-adjusted expected profit, rather than of the expected profit. The paper first evaluates the implication of the various risk-preferences of the retailer on the manufacturer’s policy under a full-information scenario. Then, it considers a partial information scenario and computes the expected value of perfect information. Finally, it assesses the impact on the manufacturer’s profit of sharing the retailer’s risk through the introduction of a buyback policy. Linear or iso-elastic demand functions and additive or multiplicative demand error structures capture the demand distributions. Analytical results as well as numerical examples illustrate the main features of the model.