Returns with wholesale‐price‐discount contract in a newsvendor problem

Returns with wholesale‐price‐discount contract in a newsvendor problem

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Article ID: iaor20112110
Volume: 130
Issue: 1
Start Page Number: 104
End Page Number: 111
Publication Date: Mar 2011
Journal: International Journal of Production Economics
Authors:
Keywords: newsvendor network
Abstract:

We consider a newsvendor problem in a supply chain that consists of a manufacturer and a retailer. The manufacturer is the Stackelberg leader and the retailer is the follower. We examine how the manufacturer can contract a wholesale‐price‐only agreement with its retailer that maximizes its profit. We also propose a returns policy with a wholesale‐price‐discount scheme (returns‐discount contract) that can achieve supply chain coordination. Using the wholesale price only contract as a benchmark, we show how the manufacturer sets a discounted wholesale price in a returns‐discount contract that enhances both profits of the manufacturer and the retailer, as well as improves the supply chain efficiency.

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