Shelf space allocation and coordination in the supply chain with unequal channel power structures

Abstract

Shelf space is a scarce resource of the retailer. It not only has the function of stocking and demonstrating items but also has a substantial impact on the sales level of that item. The paper investigates a two-echelon supply chain consisting of a supplier and a retailer in which the demand of the retailer is both price and shelf-space sensitive. The optimal decisions of pricing and allocation of shelf space in the centralized and decentralized supply chain are investigated under unequal channel power structures, namely supplier Stackelberg and retailer Stackelberg. The results show that: 1)In the decentralized supply chains, the retail prices of the retailer are higher, the amount of shelf spaces allocated are less compared to that in the centralized supply chain. 2)Compared to the retailer-Stackelberg supply chain, the retail price is lower and the amount of shelf space allocated is more in the supplier-Stackelberg supply chain. Since the decentralized supply chain are not coordinated, the revenue and cost sharing contact is designed to coordinate the decentralized supply chains with unequal power structures. The reasonable range of the parameter is given to ensure the supplier and the retailer have incentives to accept the contract.