Pricing and Logistics Decisions for a Private‐Sector Provider in the Cash Supply Chain

Abstract

We study a problem faced by a secure‐logistics provider (SLP) of maximizing profit by jointly pricing the services of fit‐sorting and transporting cash along with the design of the supporting logistics network, in a market consisting of a population of Depository Institutions (DIs). The need to jointly price the services assumes significance because they are partial substitutes of one another. Our study finds that the influence of the logistics network on prices is especially strong when there are non‐linearities in the cost of provisioning the logistics services. Furthermore, the impact of logistics decisions on different types of pricing schemes (e.g., volume discount, bundled pricing) is different, both in its structure and extent. In present times, when the market for the fit‐sorting service is relatively immature, our findings have major implications to the way an SLP's business is managed.