MANUFACTURER LEADING CONSIGNMENT CONTRACT WITH QUALITY DESIGN

Abstract

ABSTRACT We consider a supply chain with an upstream manufacturer and a downstream retailer under a consignment contract. We adopt a game theoretic framework to study the optimal decisions and channel performance. The manufacturer leads the game by choosing product quality and selling price, followed by the retailer setting the revenue share and the manufacturer delivering a quantity to the retailer. We compare this model with the centralized model and a model in which the retailer leads the game by setting the revenue share. We find that the price-quality ratios in the three models are the same. The manufacturer leading the game will result in lower service level and stocking quantity than the retailer leading the game. We also compare other decisions, profits and supply chain performance. Keywords product quality; consignment contract; revenue sharing; supply chain; price-setting newsvendor