Abstract
Article history: Received March 15, 2014 Accepted September 6, 2014 Available online September 9 2014 This paper studies the channel coordination between a supplier and a retailer with price and sales effort dependent demand. By means of game theory, we analyze price and sales effort decisions of the centralized supply chain. Then we consider three different contracts under decentralized model, i.e., wholesale price contract, cost-sharing contract and a two-part tariff contract, in which the supplier offers a contract comprising a wholesale price and a lump-sum fee to the retailer to coordinate the supply chain. Finally, we analyze the results to compare the equilibrium decisions under different contract scenarios. Our results show that both the wholesale price contract and the cost-sharing contract cannot coordinate the supply chain while the two-part tariff contract can effectively coordinate the supply chain. © 2015 Growing Science Ltd. All rights reserved.
Highlights
Faced with more intensified market competition than ever before, the retailers must focus on more complicated strategies than lowering the price
We investigate wholesale price contract and cost-sharing contract in the decentralized supply chain model and develop a two-part tariff contract to coordinate the supply chain, in which the supplier offers a contract comprising a wholesale price and a lump-sum fee to the retailer
We have analyzed the issue of supply chain coordination between a supplier and a retailer with price and sales effort dependent demand
Summary
Faced with more intensified market competition than ever before, the retailers must focus on more complicated strategies than lowering the price. Iyer (1998) analyzed the channel coordination issues of manufacturers when retailers compete in price as well as non-price factors such as the provision of product information, free repair, faster check-out, or after-sales service. Mukhopadhyay et al (2009) studied a distribution channel in which a manufacturer relies on a sales agent for selling the product and for investing in marketing effort They proposed two contract forms: a two-part price schedule specifying a variable wholesale price and a fixed franchise fee. We model different decision making structures (the centralized supply chain and decentralized supply chain) in a supply chain where the retailer undertakes sales effort to increase the market demand.
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