How a dominant retailer might design a purchase contract for a newsvendor-type product with price-sensitive demand |
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Authors: | Amy Hing Ling Lau Hon-Shiang Lau Jian-Cai Wang |
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Institution: | 1. School of Business, The University of Hong Kong, Pokfulam Road, Hong Kong;2. Department of Management Sciences, City University of Hong Kong, Tat Chee Avenue, Hong Kong |
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Abstract: | A dominant retailer will purchase a newsvendor-type product from a manufacturer, who incurs a unit manufacturing cost k. The expected retail demand is a function of the unit retail price p. How should the retailer design her purchase contract? For this increasingly prevalent but inadequately studied scenario, we propose plausible adaptations of several contract formats that have been widely studied in the dominant-manufacturer context. For both symmetric-k and asymmetric-k-knowledge situations, we present performance results of these contracts. Our results then reveal that the performance of these contract formats under our scenario differs considerably from what one would surmise from the well-known results published for closely related scenarios. For example, the widely studied buyback and revenue-sharing formats turn out to be largely ineffective when implemented by a dominant retailer. In contrast, the two-part tariff format performs well relative to the theoretically optimal “menu of contracts.” Our results highlight the need to study purchase contract formats designed specifically for dominant-retailer newsvendor-product channels. |
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Keywords: | Supply chain (contracts coordination) Gaming Purchasing |
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