Manufacturer Rebate Research Articles

Parallel imports under a manufacturer rebate and a price freeze: Evidence from Germany.

I study the effect of a change in the mandatory manufacturer rebate and a price freeze on wholesale prices for pharmaceuticals on competition by parallel imports. First, I analyze the effect of a manufacturer rebate on competition by parallel imports in a two-country model. Second, I exploit a policy reform in Germany in 2010 that increased the manufacturer rebate by 10 percentage points. Using a data set with prescription drugs with competition from parallel imports, I estimate the effect of the change in the manufacturer rebate on competition by parallel imports. The model predicts that an increase in the manufacturer rebate increases the market share of parallel imports. The rebate decreases the manufacturer's revenues from domestic distribution. In response, the manufacturer lowers the wholesale price for a foreign distributor, resulting in a competitive advantage for and an increase in the market share of parallel imports. The estimation shows that the increase in the manufacturer rebate by 10 percentage points has increased the market share of parallel imports by approximately 18%-35% and has increased the number of importers by up to 17%.

Strategic inventory and dynamic pricing for a two-echelon green product supply chain

This study investigates the purchasing strategies, pricing decisions and incentive mechanism for two selling periods for a two-echelon green product supply chain with one manufacturer and one retailer. The demand for the green product is price, greenness and time sensitive. Two purchasing, a single purchasing opportunity and a two purchasing opportunity, strategies are considered, and whether the retailer maintains strategic inventory for the second selling period is also examined for the two purchasing opportunity strategy. For each purchasing strategy and for maintaining or not maintaining strategic inventory, two-price policies with or without a manufacturer rebate are investigated by comparing them with a benchmark model. The problems are formulated as two-period Stackelberg game models, and closed-form equilibrium solutions are derived through backward induction. Extensive numerical experiments are conducted to illustrate the effectiveness and robustness of the models and sensitivity analyses are performed to examine the effects of the important problem parameters on the optimal decisions. From the theoretical and numerical results, both the manufacturer and the retailer can benefit from producing and selling the green product. The two purchasing opportunity strategy is obviously superior to the single purchasing opportunity strategy since it can improve the performances for both the manufacturer and the retailer. Moreover, it is beneficial to both supply chain members when the retailer adopts the two purchasing opportunity strategy and maintains strategic inventory, and when the manufacturer provides a rebate for each unit of the product sold in the second selling period. • Study strategic inventory and dynamic pricing for a two-echelon green product supply chain. • Propose two purchasing stratigies for a retailer who may maintain strategic inventories or not. • Investigate two-price policies with or without a manufacturer rebate for each purchasing strategy. • Present closed-form equilibrium solutions together with sensitivity analyses. • Perform numerical studies to illustrate the theoretical results and provide managerial insights.

Manufacturer rebate strategy under chain to chain competition

This article builds an analytical framework for manufacturers developing rebate strategies under the chain to chain competition. We demonstrate that rebates are likely to be implemented by manufacturers in both more cost-effective and less cost-effective business environments. We show that manufacturers are more likely to use more cost-effective rebates than less cost-effective rebates when the price competition between two chains is intensified. Rebate can be a dominant strategy for both manufacturers and retailers under two conditions: the market with a small percentage of the rebate-sensitive segment, plus (1) fierce competition and more cost-effective rebates, or plus (2) less cost-effective rebates. Our research provides a reference frame to design price discrimination mechanisms and some management insights for manufacturers.

Optimal Subsidy Schemes and Budget Allocations for Government‐Subsidized Trade‐in Programs

Applications of government subsidies to speed up consumer trade‐ins of used products can be commonly observed in practice. This study investigates the design of such trade‐in subsidy programs and aims to provide implementable insights for practice. In particular, we focus on two open problems in the literature, (i) how to optimally allocate the subsidy budget among the multiple products covered by the trade‐in program, and (ii) how to most effectively utilize the assigned budget to incentivize consumer trade‐ins for each product. We develop a three‐stage Stackelberg game model that captures the essence of the interaction between the government's subsidy decision, the manufacturer's trade‐in rebate decision, and the consumer's product replacement decision. We show that a sharing subsidy scheme under which the government subsidy is proportional to the manufacturer's rebate is more effective in encouraging consumer trade‐ins than fixed‐amount subsidies. Moreover, a product with a higher environmental impact, a larger market size, a longer lifespan, or a lower value to consumers typically demands a larger subsidy budget allocation. We further use our results to derive a simple proportional budget allocation rule that can provide robust and near‐optimal performance. We illustrate our results by a case study based on the “old‐for‐new" program in China that subsidizes home appliance trade‐ins. Our results indicate that policy makers should pay attention to the correlation between government subsidies and manufacturer's rebate as well as key product and market characteristics when designing a subsidy scheme for trade‐in programs.

Pareto and Kaldor–Hicks improvements with revenue-sharing and wholesale-price contracts under manufacturer rebate policy

Rebate policies are widely used by manufacturers to stimulate sales. This paper analyzes a supply chain with revenue sharing and wholesale price contracts under manufacturer rebate policy, where the stochastic multiplicative demand function depends on both retail price and manufacturer rebate. We identify Stackelberg equilibrium for the supply chain under each contract. It is our finding that under the manufacturer’s respective optimal decisions for revenue sharing and wholesale price contracts with rebates, the retailer’s optimal retail prices are the same. We recognize sufficient conditions under which a revenue sharing contract and a wholesale price contract with rebate can achieve Pareto improvement, i.e., both the manufacturer and the retailer obtain a greater expected profit, compared with the cases without rebate. A sufficient condition is found, under which a revenue sharing contract with rebate policy can achieve Kaldor–Hicks improvement, i.e., yielding a greater expected profit for the manufacturer, a lower expected profit for the retailer, and a greater expected total profit, over pure revenue sharing contract without rebate. Further, it is shown that with rebate, a revenue sharing contract can achieve Kaldor–Hicks improvement over a wholesale price contract. Finally, our findings are demonstrated using numerical studies.

Rebate Strategy Selection and Channel Coordination of Competing Two-Echelon Supply Chains

Rebate has long been a crucial tool that has attracted researchers from a diverse range of fields including marketing and supply chain management. When a manufacturer uses a retailer for reaching end customers, the rebate strategy undertakes an additional dimension. Here we show whether the two rebate strategies, manufacturer rebate and channel rebate, can be the optimal choice for the manufacturer and the retailer. And we aim at full coordination with rebate. Game theory is exploited to identify the equilibrium rebate decisions, which are fully characterized with two rebate strategies considering rebate sensitivity. Furthermore, we demonstrate how the decisions depend on parameters, such as market size, rebate redemption rate, and competition intensity in monopoly and duopoly supply chain systems. Our work also coordinates the supply chain with two coordination policies and examines if they can achieve full coordination. Counterintuitive findings suggest that the channel rebate with sensitivity and discrimination is not effective and the manufacturer rebate is the unique optimal option. Besides, the coordination can be realized with a centralized rebate in monopoly setting when the manufacturer forgoes her own interest. Then full coordination can be achieved in duopoly setting with a new coordination policy, rebate combination, given the redemption rate for the channel rebate is lower compared with the manufacturer rebate. Managerial insights are suggested that offering rebates with discrimination can have significant inventory and coordination policy implications and can lead to a double win under a well-controlled redemption rate.

Manufacturer rebate and channel coordination in O2O retailing

Many manufacturers are opening their own online channels due to the growth of e-commerce leading to intensive channel competition with their offline retailer partners. This research proposes an innovative coordination mechanism to lessen channel competition and help enhance the profits of all parties. First, two strategic mechanisms (i.e. a manufacturer rebate to offline consumers and the quantity discount) are proposed and studied. Our results show that although a manufacturer rebate offered to offline consumers helps mitigate the online-to-offline (hereafter O2O) competition conditionally, a quantity discount, unexpectedly, cannot be used to mitigate channel competition effectively. A new mechanism - the combination of the manufacturer rebate to offline consumers combined with a quantity discount to retailers – is developed to lessen channel competition. We find that compared to the first two mechanisms, the combination mechanism, surprisingly, provides a significant advantage in creating greater profits for the entire supply chain. Furthermore, compared to the benchmark O2O model, the combination mechanism also helps create a Pareto situation and thus is an optimal mechanism to be used to mitigate channel competition effectively.

Manufacturer rebate in green supply chain with information asymmetry

In this article, we study the influences of manufacturer rebate on the outcomes of the channel members in a green supply chain, where the retailer has private information about market demand. We find that, (1) manufacturer rebate is good for the channel members, however, the manufacturer takes a lower share of the incremental profit than the retailer; (2) the value of manufacturer rebate for the channel members increases as the promotion frequency and the slippage effect increase. Then, we extend the models to the cases with information sharing and simultaneous game mode, respectively. The results show that, (1) information sharing benefits the manufacturer, but does not necessarily hurt the retailer; (2) a suitable manufacturer rebate strategy will promote the retailer to share the demand information; (3) the first-mover advantage of manufacturer benefits himself, but hurts the retailer and the channel.

Parallel Imports and Manufacturer Rebates: Evidence from Germany

In this paper, I study the effect of a change in the mandatory manufacturer rebate on wholesale prices for pharmaceuticals on competition by parallel imports. First, I analyze the effect of a manufacturer rebate on competition by parallel imports in a two-country model. An increase in the manufacturer rebate increases the market share of parallel imports. Second, I exploit a policy reform in Germany in 2010 that increased the manufacturer rebate by 10 percentage points. Using a data set with prescription drugs with competition from parallel imports, I estimate the effect of the change in the manufacturer rebate on competition by parallel imports. Estimation results suggest that an increase in the manufacturer rebate has increased the market share of parallel imports.

Manufacturer Rebate Competition in a Supply Chain with a Common Retailer

We consider manufacturer rebate competition in a supply chain with two competing manufacturers selling to a common retailer. We fully characterize the manufacturers’ equilibrium rebate decisions and show how they depend on parameters such as the fixed cost of a rebate program, market size, the redemption rate of rebate, the proportion of rebate‐sensitive consumers in the market and competition intensity. Interestingly, more intense competition induces a manufacturer to lower rebate value or stop offering rebate entirely. Without rebate, it is known that more intense competition hurts the manufacturers and benefits the retailer. With rebate, however, more intense competition could benefit the manufacturers and hurt the retailer. We find similar counterintuitive results when there is a change in some other parameters. We also consider the case when the retailer subsidizes the manufacturers sequentially to offer rebate programs. We fully characterize the retailer's optimal subsidy strategy, and show that subsidy always benefits the retailer but may benefit or hurt the manufacturers. When the retailer wants to induce both manufacturers to offer rebate, he always prefers to subsidize the manufacturer with a higher fixed cost first. Sometimes the other manufacturer will then voluntarily offer rebate even without subsidy.

Manufacturer Rebate Competition in a Supply Chain with a Common Retailer

Manufacturer Rebate Competition in a Supply Chain with a Common Retailer

Impact of a financial risk-sharing scheme on budget-impact estimations: a game-theoretic approach

As part of the process of updating the National List of Health Services in Israel, health plans (the 'payers') and manufacturers each provide estimates on the expected number of patients that will utilize a new drug. Currently, payers face major financial consequences when actual utilization is higher than the allocated budget. We suggest a risk-sharing model between the two stakeholders; if the actual number of patients exceeds the manufacturer's prediction, the manufacturer will reimburse the payers by a rebate rate of α from the deficit. In case of under-utilization, payers will refund the government at a rate of γ from the surplus budget. Our study objective was to identify the optimal early estimations of both 'players' prior to and after implementation of the risk-sharing scheme. Using a game-theoretic approach, in which both players' statements are considered simultaneously, we examined the impact of risk-sharing within a given range of rebate proportions, on players' early budget estimations. When increasing manufacturer's rebate α to be over 50%, then manufacturers will announce a larger number, and health plans will announce a lower number of patients than they would without risk sharing, thus substantially decreasing the gap between their estimates. Increasing γ changes players' estimates only slightly. In reaction to applying a substantial risk-sharing rebate α on the manufacturer, both players are expected to adjust their budget estimates toward an optimal equilibrium. Increasing α is a better vehicle for reaching the desired equilibrium rather than increasing γ, as the manufacturer's rebate α substantially influences both players, whereas γ has little effect on the players behavior.

PHP191 Impact of a Financial Risk-Sharing Scheme on Budget-Impact Estimations: A Game-Theoretic Approach

As part of the process of updating the National List of Health Services (NLHS) in Israel, both health-plans (‘payers') and manufacturers provide estimates on the expected number of patients that will utilize the drug. Currently, payers face major financial consequences when actual drug utilization is significantly higher than the allocated budget. We suggest a risk-sharing model that imposes a potential penalty on the two stakeholders; if the actual number of patients exceeds the manufacturer's prediction, the manufacturer will reimburse the payers by a rebate rate of α from the deficit. In case of under-utilization, payers will refund the government at a rate of γ from the surplus budget. Our study objective was to identify the optimal early estimations of both ‘players' prior to and after implementation of the risk-sharing scheme. Using a Game-Theoretic approach, in which both players' statements are considered simultaneously, we examined the impact of risk-sharing within a given range of rebate proportions (α, γ), on players' early budget estimations. With no risk-sharing, manufacturers and health-plans will choose to announce the smallest and highest number of patients, from the cumulative distribution function of patients, respectively. When increasing “α” to be over 50%, manufacturers will announce a larger number and health-plans will announce a lower number of patients than they would without risk-sharing, thus, substantially decreasing the gap between their estimates. On the other hand, increasing γ changes players' estimates only slightly. In reaction to applying a substantial risk-sharing rebate “α” on the manufacturer, both players are expected to adjust their budget estimates towards an optimal equilibrium. Since manufacturers do not benefit directly from the health-plans' rebate to the government, increasing α is a better vehicle for reaching the desired equilibrium rather than increasing γ, as both players are substantially influenced by the manufacturer's rebate α.

How Good Are You at Getting a Lower Price? A Field Study of the US Automobile Market

Many large ticket items, such as cars and real estate, involve extensive bargaining on the part of consumers. From a consumer protection perspective, it is thus important to understand the determinants of bargaining outcomes and identify ways in which consumers can improve their bargaining performance. This research identifies several situational factors, including the information available to the consumer, the promotional environment, and a customer’s trade-in, that may have an impact on the bargaining outcome. A unique dataset is created from the US automobile market that combines actual vehicle transaction data with survey data on buyer search and bargaining behaviour. The results show that these situational variables indeed have an impact on the price a consumer pays. Specifically, on average, consumers who used the Internet and those that were offered a manufacturer rebate saved $481 and $2,126, respectively, while consumers who traded-in their old vehicle ended up paying $159 more on the new car compared to consumers who did not trade-in. Interestingly, the impact of some of these situational variables differed depending on the consumers’ ability to bargain and their enjoyment of bargaining. For example, high ability bargainers achieved more price reductions than low ability bargainers, given more information and a more active promotional environment, but this advantage did not extend in overcoming the negative impact of a trade-in. On the other hand, while buyers who enjoy bargaining do not possess a better position in a bargaining situation, they have greater tendency to search for price information and thus are better at identifying suppliers that offer a lower initial price. From a policy perspective, these results suggest that information search should be encouraged and made easier, particularly for consumers who dislike bargaining. Furthermore, even if some consumers have a high bargaining ability, there are still circumstances where their ability to get a lower price is limited. Education that highlights these pitfalls is likely to improve the final bargaining outcome and thus enhance consumer welfare.

Customer and retailer rebates under risk aversion

In a supply chain setting, we analyze a manufacturer's customer and retailer rebates, which are sales incentives offered to the end buyers and retailers, respectively. The performance of both rebates is influenced by the retailer's objective and response to the promotion due to his intermediary position in the channel. Earlier studies investigating rebates in distribution channels have traditionally assumed that the retailer is risk neutral with the objective of maximizing expected profits. In our paper, we consider a risk-averse retailer. We formally model risk aversion by adopting the Conditional-Value-at-Risk ( CVaR) decision criterion. Using a stochastic and (effective) price dependent demand, we analyze the manufacturer's rebate amount decisions and the retailer's joint inventory and pricing decisions in a game theoretical framework. We provide several structural properties of the objective functions and show monotonicity of the retailer's decisions in the degree of risk aversion. For the case of retailer rebates, we characterize the unique equilibrium, and for the case of customer rebates, we prove the existence of an equilibrium. Using numerical examples, we provide further insights on the impact of risk aversion. For example, given an exogenous wholesale price, we observe a threshold value on the retailer's risk-aversion parameter below (above) which the manufacturer is better off with retailer rebates (customer rebates); implying that the manufacturer's preferred rebate type can be different depending on whether the retailer is risk neutral or sufficiently risk averse.

The impact of manufacturer rebates on supply chain profits

AbstractManufacturer rebates are commonly used as price discount tools for attracting end customers. In this study, we consider a two‐stage supply chain with a manufacturer and a retailer, where a single seasonal product faces uncertain and price‐sensitive demand. We characterize the impact of a manufacturer rebate on the expected profits of both the manufacturer and the retailer. We show that unless all of the customers claim the rebate, the rebate always benefits the manufacturer. Our results thus imply that “mail‐in rebates,” where some customers end up not claiming the rebate, particularly when the size of the rebate is relatively small, always benefit the manufacturer. On the other hand, an “instant rebate,” such as the one offered in the automotive industry where every customer redeems the rebate on the spot when he/she purchases a car, does not necessarily benefit the manufacturer. © 2007 Wiley Periodicals, Inc. Naval Research Logistics, 2007

Probability distributions of cost, revenue and profit over a warranty cycle

A warranty cycle starts with the sale of a new item and terminates when the warranty servicing obligation of the manufacturer created by this sale ends. Cost and profit measures over a warranty cycle are of interest with regards to accounting, pricing, product quality, warranty policy design, and other issues. For most predictive and decision making purposes, these variables cannot be described adequately by their means alone. In this paper, we obtain the probability distributions of the manufacturer's rebate, cost, revenue and profit during a cycle, under a (combination) freereplacement/pro-rata warranty policy, with the incorporation of the customer repurchase behavior under warranty. We first derive the joint distribution of the numbers of free and pro-rata replacements during a cycle. We then construct and compute the distributions of interest by conditioning on the numbers of such replacements. In so doing, we take into account the warranty policy, in terms of the lengths of the free and pro-rata periods, the cost and rebate profiles, customer repurchase probabilities during a pro-rata period, and the failure time distribution of the product. We provide several numerical examples, using data that are typical of battery warranties.

Economic Benefit of Breast-Feeding Infants Enrolled in WIC

Objectives To determine whether breast-feeding of infants enrolled in the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) is associated with a reduction in Medicaid expenditures during the first 6 months of life; if so, to determine whether the reduction in Medicaid expenditures represents a positive economic benefit to society when WIC costs for these infants and their mothers are considered. Design Cohorts of exclusively breast-fed and formula-fed infants were tracked for 6 months to compare WIC costs and Medicaid expenditures. Subjects The sample consisted of 406 healthy infants who were breast-fed exclusively for at least 3 months and 470 healthy infants who were formula-fed exclusively. The infants, born between August 1, 1993, and December 31, 1993, were enrolled in WIC and Medicaid. Cost and benefit measures WIC costs included redeemed WIC vouchers for formula and foods for infants and mothers, plus administrative expenses for 6 months, minus manufacturers' rebates for formula. Benefit was determined from Medicaid expenditures for health care initiated in the first 180 days of each infant's life. Statistical and benefit-cost analyses Economic benefit was calculated as net benefit and as benefit-cost ratios. Regression techniques were used to estimate Medicaid expenditures associated with breast-feeding, adjusted for demographic and prenatal care variables. Results Compared with formula-feeding, breast-feeding each infant enrolled in WIC saved $478 in WIC costs and Medicaid expenditures during the first 6 months of the infant's life, or $161 after consideration of the formula manufacturer's rebate. A Medicaid cost saving of $112 per infant was realized by the breast-feeding cohort, and Medicaid pharmacy reimbursement costs for breast-fed infants were significantly lower—half that of formula-fed infants. Applications The promotion of breast-feeding among low-income populations through nutrition programs such as WIC is an effective cost-containment measure. J Am Diet Assoc. 1997;97:379–385.