Abstract

We integrate a retailer′s return policy and a supplier′s buyback policy within a modeling framework. In this setting, consumers decide whether to buy and then whether to return the product, the retailer sets the retail price, quantity, and refund price, and the supplier chooses the wholesale price and buyback price. Both the demand uncertainty and consumers′ valuation uncertainty are considered; consumers realize their valuations only after purchase. We discuss four scenarios for each party in the supply chain that may offer or not offer return policy. We characterize each party′s optimal decisions for all scenarios and we show that the supplier′s best choice is to provide buyback policy and the retailer′s optimal response is to set refund price to be the same as supplier′s buyback price.

Highlights

  • There has been a growing trend towards the consumer returns in recent years

  • We consider a two-echelon supply chain with a single supplier who supplies a product to a retailer, and the retailer sells the product to the uncertain market

  • The model setting we consider in this paper is a combination of three distinctive features: 1 a buyback policy offered by the upstream supplier to the downstream retailer; 2 a return policy offered by the retailer to the end consumer; 3 consumers are uncertain over the valuation

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Summary

Introduction

There has been a growing trend towards the consumer returns in recent years. A large portion of customer returns may be nondefective because the consumer does not like the product as much as anticipated, or the returned product does not fit the customer’s need or expectation. We consider a two-echelon supply chain with a single supplier who supplies a product to a retailer, and the retailer sells the product to the uncertain market They both offer a return policy to their adjacent downstream firm. Given the supplier’s decisions, the retailer chooses the order quantity, retail price, and refund price for the customers’ returns under both demand uncertainty and valuation uncertainty. The purpose of this paper is to shed light on the supplier’s and retailer’s optimal policy in the presence of customer valuation uncertainty and demand uncertainty. This paper contributes to the literature by: 1 constructing a game model of two-echelon return policies that involves both demand uncertainty and valuation uncertainty; 2 analyzing the equilibrium solution of the model; 3 providing new insights for the return policies in a two echelon supply chain.

Literature Review
The Model
Model Analysis
Scenario 1
Scenario 2
Scenario 3
Scenario 4
Performance Comparisons under Uniform Distribution
Findings
Conclusion
Full Text
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