Dynamic Slotting and Pricing Decisions in a Durable Product Supply Chain |
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Authors: | X He S P Sethi |
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Institution: | (1) School of Management, University of Texas at Dallas, Richardson, TX, USA |
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Abstract: | We consider a supply chain in which a manufacturer sells an innovative durable product to an independent retailer over its
life cycle. We assume that the product demand follows a Bass-type diffusion process and that it is determined by the market
influences, retail price of the product, and shelf space allocated to it. We consider the following retailer profit optimization
strategies: (i) the myopic strategy of maximizing the current-period profit and (ii) the far-sighted strategy of maximizing
the life-cycle profit. We characterize the optimal dynamic shelf-space allocation and retail pricing policies for the retailer
and wholesale pricing policies for the manufacturer. We compute also these policies numerically. Surprisingly, we find that
the manufacturer, and sometimes even the retailer, is better off with a myopic retailer strategy in some cases. |
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Keywords: | Stackelberg differential games Bass model Pricing Slotting Supply chain management |
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