Article ID: | iaor2010301 |
Volume: | 56 |
Issue: | 1 |
Start Page Number: | 141 |
End Page Number: | 147 |
Publication Date: | Jan 2010 |
Journal: | Management Science |
Authors: | Krishnan Harish, Winter Ralph A |
Keywords: | inventory |
This paper extends the theory of supply chain incentive contracts from the static newsvendor framework of the existing literature to the simplest dynamic setting. A manufacturer distributes a product through retailers who compete on both price and fill rates. We show that inventory durability is the key factor in determining the underlying nature of incentive distortions and their contractual resolutions. When the product is highly perishable, retailers are biased toward excessive price competition and inadequate inventories. Vertical price