×

zbMATH — the first resource for mathematics

Retail price markup commitment in decentralized supply chains. (English) Zbl 1205.90037
Summary: We investigate the operational decisions and resulting profits for a supply chain facing price-dependent demand under a policy where there is an ex-ante commitment made on the retail price markup. We obtain closed-form solutions for this policy under the assumption of a multiplicative demand function and we analytically compare its performance with that of a traditional price-only policy. We compare these results to results obtained when demand follows a linear additive form. These formulations are shown to be qualitatively different as the manufacturer’s wholesale pricing decision is independent of the retail price markup commitment in the multiplicative case, but not when demand is linear additive. We demonstrate that the ex-ante commitment can lead to Pareto-improving solutions under linear additive demand, but not under the multiplicative demand function. We also consider the effect of pricing power in the supply chain by varying who determines the retail price markup.

MSC:
90B05 Inventory, storage, reservoirs
90B06 Transportation, logistics and supply chain management
PDF BibTeX XML Cite
Full Text: DOI
References:
[1] American Marketing Association. 2004. Marketing Dictionary. <http://www.marketingpower.com/mg-dictionary.php>.
[2] Anupindi, R.Y.; Bassok, Y., Supply contracts with quantity commitment and stochastic demand, (), 197-232 · Zbl 0964.90504
[3] Arquit, K.J., 1991. Resale Price Maintenance: Consumer’s Friend or Foe? American Bar Association Section of Antitrust Law. Bureau of Competition, Federal Trade Commission.
[4] Bernstein, F.; Federgruen, A., Decentralized supply chains with competing retailers under demand uncertainty, Management science, 51, 1, 18-29, (2005) · Zbl 1232.90171
[5] Cachon, G.P., Supply chain coordination with contracts, () · Zbl 1232.90173
[6] Cachon, G.P.; Lariviere, M.A., Supply chain coordination with revenue-sharing contracts: strengths and limitations, Management science, 51, 1, 30-44, (2005) · Zbl 1232.90173
[7] Dana, J.D.; Petruzzi, N.C., Note: the newsvendor model with endogenous demand, Management science, 47, 11, 1488-1497, (2001) · Zbl 1232.90038
[8] Deneckere, R.; Marvel, H.P.; Peck, J., Demand uncertainty, inventories and resale price maintenance, The quarterly journal of economics, 111, 3, 885-913, (1996) · Zbl 0859.90023
[9] Emmons, H.; Gilbert, S.M., Note: the role of policies in pricing and inventory decisions for catalog goods, Management science, 44, 2, 276-283, (1998) · Zbl 0989.90043
[10] Federgruen, A.; Heching, A., Combined pricing and inventory control under uncertainty, Operations research, 47, 3, 454-475, (1999) · Zbl 0979.90004
[11] Granot, D.; Yin, S., On the effectiveness of returns policies in the price-dependent newsvendor model, Naval research logistics, 52, 8, 765-779, (2005) · Zbl 1278.90021
[12] Gurnani, H.; Xu, Y., Resale price maintenance contracts with retailer sales effort: effect of flexibility and competition, Naval research logistics, 53, 5, 448-463, (2006) · Zbl 1151.91446
[13] Ha, A.Y., Supplier-buyer contracting: asymmetric cost information and cutoff level policy for buyer participation, Naval research logistics, 48, 41-64, (2001) · Zbl 0981.90036
[14] Jeuland, A.P.; Shugan, S.M., Managing channel profits, Marketing science, 2, 3, 239-272, (1983)
[15] Kanavos, P.; Reinhardt, U., Reference pricing for drugs: Is it compatible with U.S. health care?, Health affairs, 22, 3, 16-30, (2003)
[16] Kandel, E., The right to return, Journal of law and economics, 39, 329-356, (1996)
[17] Karlin, S.; Carr, C.R., Prices and optimal inventory policy, () · Zbl 0142.17104
[18] Klein, B., Distribution restrictions operates by creating dealer profits: explaining the use of maximum resale price maintenance in state oil v. khan, ()
[19] Lariviere, M.A.; Porteus, E.L., Selling to the newsvendor: an analysis of price-only contracts, Manufacturing & service operations management, 3, 4, 293-305, (2001)
[20] Lau, H.; Lau, S., The newsvendor problem with price-dependent demand distribution, IIE transactions, 20, 2, 168-175, (1988)
[21] Lee, E.; Staelin, R., Vertical strategic interaction: implications for channel pricing strategy, Marketing science, 16, 3, 185-207, (1997)
[22] Liu, Y.; Fry, M.; Raturi, A., Vertically restrictive pricing in supply chains with price-dependent demand, Naval research logistics, 53, 6, 485-501, (2006) · Zbl 1106.90304
[23] Marvel, H.P.; Peck, J., Demand uncertainty and return policies, International economic review, 36, 3, 691-714, (1995) · Zbl 0836.90019
[24] Mills, E.S., Uncertainty and price theory, The quarterly journal of economics, 73, 1, 116-130, (1959)
[25] Monroe, K.B., Pricing: making profitable decisions, (1990), McGraw-Hill New York, NY
[26] Pasternack, B.A., Optimal pricing and the return policy for perishable commodities, Marketing science, 4, 166-176, (1985)
[27] Patented Medicine Prices Review Board (PMPRB), 2002. Verification of Foreign Patented Drug Prices, PMPRB Study Series S-0215.
[28] Petruzzi, N.C.; Dada, M., Pricing and newsvendor problem: A review with extensions, Operations research, 47, 2, 183-194, (1999) · Zbl 1005.90546
[29] Raz, G., Porteus, E.L., 2003. Selling to the Newsvendor Under Endogenous Retail Pricing. Working Paper. Stanford University, Stanford, CA.
[30] Rice, J.B.; Hoppe, R.M., Supply chain versus supply chain: the hype and the reality, Supply chain management review, 5, 5, 46-55, (2001)
[31] Song, Y., Ray, S., Li, S., forthcoming. Structural properties of buy back contract for price-setting newsvendors. Manufacturing & Service Operations Management.
[32] Srivastava, J.; Chakravarti, D.; Rapoport, A., Price and margin negotiation in marketing channels: an experimental study of sequential bargaining under one-sided uncertainty and opportunity cost of delay, Marketing science, 19, 2, 163-184, (2000)
[33] Thowsen, G.T., A dynamic, non-stationary inventory problem for a price/quantity setting firm, Naval research logistics quarterly, 22, 3, 461-476, (1975) · Zbl 0331.90026
[34] Tsay, A.A.; Nahmias, S.; Agrawal, N., Modeling supply chain contracts: A review, (), 299-336 · Zbl 1052.90513
[35] Wang, Y.; Jiang, L.; Shen, Z., Channel performance under consignment contract with revenue sharing, Management science, 50, 1, 34-47, (2004) · Zbl 1168.90354
[36] Weng, Z.K., Pricing and ordering strategies in manufacturing and distribution alliances, IIE transactions, 29, 681-692, (1997)
[37] Whitin, T.M., Inventory control and price theory, Management science, 2, 1, 61-68, (1955)
[38] Yano, C.A.; Gilbert, S.M., Coordinated pricing and production/procurement decisions: A review, ()
[39] Yao, L., Chen, Y., Yan, H., 2004. Analysis of a Supply Contract for Coordinating the Newsvendor with Price Dependent Demand. Working Paper. Chinese University of Hong Kong, ShaTin, Hong Kong.
[40] Young, L., Price, inventory and the structure of uncertain demand, New Zealand operations research, 6, 157-177, (1978)
[41] Zabel, E., Monopoly and uncertainty, Review of economic studies, 37, 2, 205-219, (1970) · Zbl 0194.50902
[42] Zabel, E., Multiperiod monopoly under uncertainty, Journal of economic theory, 5, 524-536, (1972)
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. It attempts to reflect the references listed in the original paper as accurately as possible without claiming the completeness or perfect precision of the matching.