Two-part pricing contracts under competition: the South-to-North Water Transfer Project supply chain system in China

Abstract

This study analyzes the water supply chain system of the Eastern Route of the South-to-North Water Transfer Project in China. The article compares the impacts of competition intensity on profits of two water distributors and the water supply chain system under two-part pricing contracts versus wholesale price contracts. When the upstream water supplier offers two-part pricing contracts, the water quantity and expected profits of both distributors decrease as the competition intensity increases. The expected profits of the supply chain system decrease, but are greater than the profits under wholesale price contracts. The government can control fixed costs to balance the profits of suppliers and distributors.