Lower Wholesale Price Research Articles

Commitment Role of Trade Credit in a Supply Chain With Buyer Competition

In practice, trade credit (TC) is often offered in a contract that stipulates a single interest rather than an interest menu contingent on the loan amount. This paper offers a new explanation for the provision and use of TC by financially resourceful firms by accounting for special the form of TC contract and buyer competition in the supply chain. We solve a dynamic game between a supplier and two buyers who have access to a perfect capital market and compete in a Cournot game in the downstream market. We show that the TC contract incentivizes the buyer to order more than the first-best order quantity. Thus, the buyers use TC for purely strategic purposes: to commit to competing aggressively. The supplier offers TC this way to induce the buyers to over-order and increase demand. Surprisingly, despite its deadweight agency cost, strategic TC may create value for the buyers and the entire supply chain. This finding is opposite to the well-known result that strategic debt always destroys value and make the borrowers worse off. It is made possible by the effect of TC on the supplier-to-buyer interaction that is unique to a supply chain. Specifically, strategic TC may allow the buyers to enjoy a lower wholesale price, thus making them better off by reducing the purchasing cost. The over-ordering distortion of TC mitigates the under-ordering problem caused by double marginalization, thus improving the total welfare of the supply chain. Our results imply that the supplier should enhance its production cost reduction effort to take advantage of TC and unlock substantial profit increase. The buyers should also leverage the benefit of TC when improving the consumers' willingness-to-pay (WTP). Their payoffs may be maximized at a moderate consumers' WTP that leads to TC usage.

A Trade Credit Model with Asymmetric Competing Retailers

We study a supply chain of a manufacturer selling to two asymmetric retailers engaged in inventory (order quantity) competition in the presence of demand uncertainty and an exogenously given retail price. The effective demand of each retailer includes its primary demand and reallocated demand from its competitor. We model two salient features causing asymmetry: (i) the weak retailer is capital‐constrained and (ii) the bargaining power of the dominant retailer implies that it enjoys a lower wholesale price. The manufacturer offers trade credit to the weak, capital‐constrained retailer. We show that such trade credit can be used by the manufacturer as a strategic response to the bargaining power of its dominant retailer. Computational examples reveal that under inventory competition, the capital‐constrained retailer benefits from the trade credit, leaving the dominant retailer worse off. We show that demand substitution increases the profit of the dominant retailer and the manufacturer but, somewhat surprisingly, decreases the weak retailer's profit. When both bank and trade credit are available, we show conditions under which trade credit is preferred over bank credit by the manufacturer. Compared with a trade credit with an endogenous interest rate (and an exogenously given wholesale price), a trade credit with an endogenous wholesale price (and an exogenously given interest rate) is preferred by the manufacturer, but is only preferred by the system when the weak retailer's initial working capital is small.

Impact of policy mix concerning renewable portfolio standards and emissions trading on electricity market

Few studies of policy mix concerning renewable portfolio standards (RPS) and emissions trading (ET) investigate a scenario in which the retailer is required to comply with quota obligations. This paper focuses on the impact of RPS, with an ET counterpart, on the electricity market when RPS are imposed on the state grid companies. The evolution game is employed to model transactions between multiple buyers and multiple sellers. The results show that ET enhances the price competitiveness of electricity from renewable energy source (RES-E) and reduces power generating companies’ profit at the same time. On the other hand, when the RPS level goes up, the state grid companies gain a windfall created by the difference between the lower wholesale price of thermal power and the unchanging retail price. The windfall will be used to pay for the increasing cost of supporting RES-E. Thus, the thermal power generating companies are confronted with the double cost when introducing ET and RPS, but the state grid companies do not pay for the cost of supporting RES-E. This paper appeals to the Chinese government for the assessment of policy effects from a policy mix perspective.

Wholesale Price Discrimination in Global Sourcing: Field Evidence from Alibaba

Previous research has found price discrimination in business-to-consumer (B2C) markets, where buyers are end customers. There is limited research on suppliers' price-quoting behaviors and price discrimination in business-to-business (B2B) markets. It is unclear whether certain characteristics of B2B buyers, who are often representatives of firms and not end customers, would influence suppliers' pricing decisions. In this research, we study wholesale price discrimination by collaborating with a global trading company that runs a field experiment on a global sourcing marketplace. We find that there is no significant difference in the wholesale prices quoted to buyers selling in US and South African markets. We also find that suppliers quote significantly higher wholesale prices to White buyers than to Asian and Black buyers, regardless of country. However, price discrimination disappears when buyers present market information to suppliers, providing the lowest wholesale price offered by other suppliers in the market, whereas price discrimination remains when buyers present social information to suppliers, thereby indicating the buyer is referred by a previous customer. In addition, we show that market information can help buyers obtain a lower wholesale price because it signals a lower willingness to pay. Social information, however, can reduce price quotes for only Black and White buyers, but not for Asian (particularly Chinese) buyers.

Pricing policies and coordination of low-carbon supply chain considering targeted advertisement and carbon emission reduction costs in the big data environment

In the Big Data era, targeted advertising occurs some changes in increasing the marketing accurateness and its valuation model. When the low-carbon product traders adopt targeted advertising, consumer preference information also gets their attentions. In this process, the pricing rules and coordination issues become their attention problems considering targeted advertising and consumer performance information in the new background, but efforts about it are still a gap. Thus, to explore these problem, a low-carbon supply chain with one retailer and one low-carbon manufacturer was chosen. Afterwards, the demand function was revised considering the targeted advertising and the carbon emission level, and four common cost-sharing models and its pricing rules were put forward and analyzed. Finally, revenue-sharing contract was used to coordinate supply chain in the proposed four models. Results indicates that sharing the BDAT inputs, the costs for obtaining consumer preference information and the carbon emission reduction costs can help the retailer obtain a low wholesale price and gain more benefits. When the value of revenue-sharing coefficient is bigger than 0.25 and lower than 0.5, the revenue-sharing contract can achieve the low-carbon supply chain coordinate.

Strategic introduction of the marketplace channel under dual upstream disadvantages in sales efficiency and demand information

The increasing prevalence of online retailing has recently given rise to a novel marketplace channel, in which upstream manufacturers can sell their products directly to consumers by paying a fee to e-tailers. While it endows upstream manufacturers with direct access to consumers, it also requires them to personally perform sales work, which is not their strength, especially in the form of sales efficiency and demand information. In this paper, we apply a stylized theoretical model to examine whether the manufacturer and e-tailer should agree to introduce the marketplace channel by considering these dual upstream disadvantages. We present an interesting insight that the marketplace channel should be introduced under not only a low degree but also a high degree of upstream sales inefficiency, which also means that a weak direct channel would not necessarily become a burden for the two. Actually, here, its introduction leads to higher output, a lower wholesale price and a lower retail price, thus benefiting both the supply chain members and the overall economy. In contrast, we find that only when the upstream informational disadvantage is moderate can the two reach consensus and introduce the marketplace channel. These findings, counterintuitively, demonstrate the entirely different effects of two types of upstream disadvantage in the equilibrium channel structure. Further, we also illustrate how the manufacturer’s two disadvantages interact with one another; a manufacturer with higher sales efficiency can screen information early, while a manufacturer with low sales efficiency has to suffer longer from poor demand information.

Optimal pricing in mass customization supply chains with risk-averse agents and retail competition

We analytically investigate the optimal pricing decisions in a mass customization (MC) supply chain with one risk averse manufacturer and two risk averse competing retailers. The manufacturer is the Stackelberg leader, which offers a wholesale pricing contract to the retailers. After receiving the wholesale price, each retailer decides the retail selling price for the MC product simultaneously. We first prove the existence of a unique pricing equilibrium and then derive the optimal prices. After that, we focus our attention on exploring how the degree of risk aversion of each supply chain agent affects the optimal prices as well as consumer welfare, supply chain profitability, and credit deposit under a competitive setting. We find that a more risk averse manufacturer will offer a lower wholesale price, which leads to lower retail selling prices offered to the market. For the retailers, if a retailer is more risk averse, it will make the manufacturer offer a higher wholesale price and it will set a lower retail selling price; however, whether the competing retailer will increase or decrease the retail selling price depends on the level of competition. We examine the impacts brought by the market demand uncertainties as well as the respective demand correlation. We conclude by revealing that in the sufficiently competitive market environment, consumers enjoying MC services are benefited more but the supply chain profitability may decrease more (depending on how risk averse the agents are) when (i) the manufacturer and retailers are more risk averse, (ii) demand uncertainties and the correlation between market demands are higher. We also find that the retailers need to pay more credit deposit if the manufacturer is more risk averse or the demand correlation is higher. Finally, we consider the MC product improvement scheme in the extended model and reveal that it is a Pareto improving optimal measure if the supply chain agents are not too risk averse and the increment in production cost is sufficiently small.

Mitigating supply risk: an approach with quantity flexibility procurement

This paper considers a buyer that procures from its major supplier whose production is subject to random yield risk. To mitigate supply risk, the buyer can procure from another reliable supplier who provides quantity flexibility (QF) contract. Under both deterministic and stochastic demand, we study the buyer’s optimal procurement decisions. We analyze the structural properties of optimal solutions and identify the conditions under which the quantity flexibility procurement policy should be used. We also examine the effect of supply risk, flexibility, wholesale price and demand risk on the procurement decisions. We find that the higher supply risk and demand risk reduce the buyer’s profit but have different impact on the buyer’s order policy. For the QF supplier, it may not obtain more orders by providing larger flexibility to the buyer, on the contrary, doing this may benefit the risky supplier. For the QF supplier or risky supplier, given its competitor’s wholesale price, it can increase its order share by lower wholesale price.

The missing money problem: Incorporation of increased resources from wind in a representative US power market

Abstract The paper considers opportunities to reduce emissions of CO2 through increases in commitments to wind in a representative US power market. A model is applied to simulate market operations for different wind levels focusing on implications of the reduction in clearing prices arising due to increasing inputs of zero marginal cost power from wind, a dilemma referred to as the missing money problem. The resulting decrease in income poses problems for existing thermal and nuclear generating systems, at the same time making investments in wind uneconomic in the absence offsetting policy interventions. Two options are considered to subsidize cost: an investment credit (IC) or a subsidy on production (PC). The dilemma could be addressed also with a carbon tax targeted to increase income. It is assumed that the cost associated with the IC and PC options should be borne by the consumer, offsetting benefits from lower wholesale prices. It is assumed further that income from the carbon tax should be rebated to the consumer offsetting related increases in clearing prices. IC and PC options offer opportunities to reduce emissions at low or even negative net costs to the consumer. Higher costs are associated with the option of a carbon tax.

Using backup supply with responsive pricing to mitigate disruption risk for a risk-averse firm

We consider a risk-averse firm’s sourcing problem with two suppliers: a dedicated one and a backup one. The dedicated supplier charges a lower wholesale price, but faces potential disruption risk. The backup supplier is assumed to be perfectly reliable, but charges a higher wholesale price. To mitigate the disruption risk, the firm uses a joint backup supply and responsive pricing strategy. We consider three common backup strategies between the firm and the backup supplier: advance purchase, reservation and contingency purchase. We derive under what conditions each strategy could be optimal. The results show that the thresholds that determine the optimal backup supply strategy are affected by the risk aversion level. When the risk aversion level is not extremely high, the firm should choose among the three backup suppliers by considering the disruption probability and the reservation fee. Firms with a higher risk aversion level tend to rely more on ex-ante preventive efforts (i.e. reservation or advance purchase strategies). When the risk aversion level is extremely high, the firm never considers the contingency purchase strategy, even for a low-probability disruption event. Additionally, market conditions yield non-negligible influences on the firm’s strategic choices due to the existence of risk aversion.

Impacts of Power Structure on Sustainable Supply Chain Management

The present paper examines the manufacturer’s operational decisions, e.g., wholesale price and product sustainability level, the retailer’s operational decision, e.g., retail margin, and supply chain efficiency under three supply chain power structures: manufacturer Stackelberg, Nash and retailer Stackelberg. As a benchmark, we first obtain the equlibrium price and product sustainability level in a vertically integrated supply chain. Our analysis provides some interesting findings in a decentralized supply chain: (i) a dominant manufacturer (retailer) always benefits from its power; (ii) the entire supply chain earns the most profit from the Nash game, and the least from the retailer Stackelberg game, respectively; (iii) as the power shifts from the manufacturer to the retailer, product sustainability and retail price increase; (iv) dominant manufacturer does not necessarily imply low wholesale price that would benefit the retailer. Managerial insights are provided for the manufacturer and the retailer, respectively.

Strategic cooperation with a backup supplier for the mitigation of supply disruptions

We study optimal sourcing decisions for a firm with a dedicated supplier and a backup supplier. The dedicated supplier charges a lower wholesale price but faces a potential disruption risk. The backup supplier is assumed to be perfectly reliable but charges a higher wholesale price. The primary question we address is how the firm should cooperate with the backup supplier to hedge against the disruption risk. We consider three common cooperation options: advance purchase, reservation and contingency purchase. Our basic results show that the firm should choose advance purchase strategy if the disruption probability is high, while contingency purchase strategy benefits the firm more if the disruption probability is low. Under an intermediate disruption probability, the firm should choose reservation strategy only if the reservation fee is sufficiently low. Then, we explore the optimal backup strategy under partial disruption risk. The results show that the advance purchase and the reservation strategy should be adopted more widely when the dedicated supplier guarantees a relatively high yield rate after disruption.

Strategic Communication for Capacity Alignment with Pricing in a Supply Chain

We study a supply chain comprised of a retailer who sources a product from a manufacturer. The retailer has superior forecast information about market demand, and the manufacturer builds the capacity and sets the wholesale price prior to demand realization. We explore forecast information sharing between the retailer and the manufacturer by means of cheap talk. We show that meaningful forecast information can be shared truthfully only before the manufacturer sets both the capacity and the wholesale price. By sharing the demand forecast with the manufacturer, the retailer faces the trade-offs between inflating the forecast to convince the manufacturer to increase capacity and deflating the forecast to persuade the manufacturer to offer a lower wholesale price. When the value of forecast information sharing is high, the trade-offs are balanced, and incentives are aligned, leading to truthful information sharing. Moreover, we find that larger demand uncertainty can promote credible information sharing and, surprisingly, can benefit both firms. Finally, we demonstrate that under general distributions, in equilibrium, firms share forecasts as a form of range/interval, which has been also implemented in practice. This paper was accepted by Yossi Aviv, operations management.

A Study of The Effect of Demand Uncertainty for Low-Carbon Products Using a Newsvendor Model.

This paper studies the effect of uncertain demand on a low-carbon product by using a newsvendor model. With two different kinds of market scales, we examine a game whereby a manufacturer produces and delivers a single new low-carbon product to a single retailer. The retailer observes the demand information and gives an order before the selling season. We find in the game that if the retailer shares truthful (or in contrast unreal or even does not share) forecast information with the manufacturer, the manufacturer will give a low (high) wholesale price through the sequence of events. In addition, as a policy-maker, the government posts a subsidy by selling the low-carbon product per unit. The manufacturer creates a new contract with a rebate for the retailer. We also take the consumer aversion coefficient and truth coefficient as qualitative variables into our model to study the order, pricing, and expected profit for the members of supply chain. The research shows that uncertain demand causes a the major effect on the new low-carbon product. Thereby, we suggest the retailer should share more truthful information with the manufacturer.

Potato market in Ukraine

Purpose. To study Ukrainian potato market at the current stage of the development and determine its future prospects.Results. The features of Ukrainian potato market were determined. Production is almost fully provided by private households, meeting the needs of the domestic market. Main regions with the highest gross output and production of potatoes were defined. Ukraine is one of the major potato producing countries in the world. Today our country is not a key supplier or importer of this product because of the low export orientation of the industry, its technological backwardness, limited product range and the large number of small producers. Ukraine exports potato mainly to CIS countries, the highest share of potato import comes from the European Union. Now there are only a few large manufacturing companies in the market, which can be classified as industrial. Most potato varieties, officially permitted for dissemination in Ukraine, are classified as table ones and recommended for cultivation in the Forest-Steppe and Polissia zones. Achievements of the industry include the development of such very popular and promising trend as organic potato growing, which area in our country is one of the largest in the world.Conclusions. Potato produced in Ukraine is used for human consumption, animal feeding, planting and processing, its volumes are relatively stable. Large-scale industrial production of potato is not widely practiced because of low wholesale prices and high labor intensity of the cultivation process. During next few years, in view of current trends, production of potato and severe limitations of the domestic market for foreign operations will remain unchanged. A shift in emphasis in the product range – from fresh potato to processed food products should be a prospect for domestic industrial producers to improve their position in Ukraine and abroad.

Comparison between the agency and wholesale model under the e-book duopoly market

This paper provides a comprehensive comparison between the agency and wholesale model under the electronic book market duopoly. A model comprised of two retailers and a publisher was established to run the comparison in terms of price, profit, and welfare. We found that although better e-reader offerings may seem favorable in terms of e-book pricing, the actual effect on e-books is limited or even negligible. High wholesale price leads to higher retail prices of e-books and e-readers under the wholesale model than the agency model. Generally speaking, the total profits of e-books returned to the retailers under the wholesale model are lower than those returned under the agency model; conversely, the publisher obtains higher profits under the wholesale model than the agency model despite its power over e-book pricing. We also found that consumers are more likely to derive greater surplus under the wholesale model when the difference in available e-books is relatively narrow. If the wholesale price is low, however, the consumer surplus under the wholesale model is higher than that under the agency model across the board. Further, when the difference in e-books is very small, the total social welfare is minimized under the wholesale model compared to the agency model; low wholesale price but poor substitutability (or high wholesale price with relatively high substitutability) yield favorable social welfare under the wholesale model.

Asymmetric retailers with different moving sequences: Group buying vs. individual purchasing

Given a quantity discount contract, retailers often prefer group buying to individual purchasing to acquire a lower wholesale price. However, under the combined effects of asymmetric demand information and different moving sequences, information revelation/acquisition between retailers may occur under group buying, thereby directly affecting their preference between individual purchasing and group buying. To capture their real preferences, we develop a model in which two retailers with asymmetric demand information purchase products from a common supplier under either individual purchasing or group buying (when moving first, later or simultaneously) and then sell to the market. We show that the informed retailer may forego group buying due to her loss of information advantage because her order quantity is revealed by the uninformed retailer. Moreover, the uninformed retailer may also reject group buying, despite obtaining demand information, because acquiring information by purposely moving later eliminates the uninformed retailer’s first-mover right and reduces his market share. Furthermore, in the context of information management, we demonstrate that the process of information revelation/acquisition harms the informed retailer to some extent but benefits the uninformed retailer to a greater extent relative to the first-best outcome under perfect information. We also address that the first-mover right becomes less valuable for both retailers with increased information value and, in particular, that their preferences concerning the moving sequence cannot reach a consensus in any case.

International roaming in the EU: Current overview, challenges, opportunities and solutions

As technology evolves and globalization continues, the need for reasonably priced roaming services has never been higher. In 2007, the European Commission (EC) introduced a first set of regulatory decisions to cap the maximal roaming fee end users have to pay for voice services. In the years after, additional price caps have been introduced for SMS and data, initially only for end users, in a later stage also for the wholesale tariff. The final step, Roaming Like at Home (RLAH), will start to take effect in June 2017; from then on end users will pay the same price (for voice, SMS and data) when roaming like in their domestic country.The effect of RLAH on the business case of each mobile operator is hard to predict, as the different national markets are extremely heterogeneous and operators face large discrepancies in terms of roaming usage and network costs due to different travelling patterns and various other reasons that cannot be harmonized (geography, economics, working force, usage history, etc.). Furthermore, competition in the telecom market will no longer be a purely national matter, as the decision to abolish roaming tariffs will fully open up cross-border competition.This paper aims at providing insights in the effect of RLAH for both the end user as well as the mobile operators. Following a literature survey approach, including an overview of the roaming regulation process from 2007 up to now, the paper discusses possible effects the RLAH initiative might trigger, going from lower wholesale prices for mobile operators to higher retail prices for end users. Additionally, as the European Commission strives for a digital single market, this paper presents a number of technical solutions (carrier portability, software-based SIMs, cross-border IMSI, Roaming like a Local, Wi-Fi offloading) that may pose a - partial or full - alternative for roaming and explains how these may impact cross-border competition both positively and negatively. The solutions are assessed against two axes: (1) generating the best possible outcome for the end customers (in all countries) and (2) ensuring the best level playing field for (virtual) mobile operators in Europe, which will of course involve trade-offs on different levels.

Leader-Based Collective Bargaining: Cooperation Mechanism and Incentive Analysis

We study leader-based collective bargaining (LCB), under which a leading buyer (leader) and a following buyer (follower) form an alliance to jointly purchase a common component from a supplier. Although the leader and the follower cooperate in their component purchase, they compete in selling their end products. We first analyze the most common and simple form of LCB, equal price LCB, under which the follower pays to the leader the same wholesale price that the leader obtains from his negotiation with the supplier. We compare each buyer’s profit under the equal price LCB with the benchmark where each buyer purchases separately from the supplier. We find that although the alliance might obtain a lower wholesale price and although the leader is always better off under equal price LCB, the follower can be worse off if the competition intensity of the leader’s and follower’s products is within an intermediate region. We identify a competition effect resulting from equal price LCB that can place the follower at a disadvantage in the competition. This finding implies that the equal price LCB might not be sustainable in practice. In view of this limitation, we investigate an alternative form of LCB, fixed price LCB, under which the follower pays a fixed price to the leader regardless of the wholesale price the leader obtains from the supplier. We show that fixed price LCB benefits not only the leader but also the follower, compared with separate purchases, which implies that fixed price LCB always achieves a win–win outcome for the buyers. Our analysis further shows that even the supplier might benefit from this form of LCB.

WELFARE EFFECTS OF DOWNSTREAM MERGERS AND UPSTREAM MARKET CONCENTRATION

We consider a dominant upstream firm selling an input to several downstream firms through observable, non-discriminatory two-part tariff contracts. Downstream firms can alternatively buy the input from a less efficient source of supply. In this setting, we analyze the relationship between the competitive effects of downstream mergers and the level of concentration at the upstream level. We show that a downstream merger leads to lower wholesale prices. This translates into lower final prices only when the upstream market is sufficiently concentrated. In this case, a downstream merger tends to be both procompetitive and profitable.