Supply contracts in manufacturer-retailer interactions with manufacturer-quality and retailer effort-induced demand (original) (raw)
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Manufacturer-Optimal Wholesale Pricing When Retailers Compete
Marketing Letters - MARK LETT, 1998
The existing marketing science literature on channels of distribution has emphasized pricing strategies that maximize either channel or manufacturer margin. This emphasis has implicitly assumed that optimal wholesale prices are independent of any fixed fees charged by the manufacturer. While this assumption is justified in a single-manufacturer, single-retailer world, it generally does not lead to manufacturer profit maximization in a world of competing retailers. In this paper we derive a manufacturer-optimal wholesale pricing strategy by simultaneously determining both elements of a two-part tariff (consisting of a wholesale price and a fixed fee). We show that the manufacturer will always prefer this “sophisticated” pricing strategy to one that maximizes either channel or manufacturer margin. We also show that both elements of the optimal tariff are functions of the absolute difference between retailer fixed costs.
A Bargaining Theory of Distribution Channels
A critical factor in channel relationships between manufacturers and retailers is the relative bargaining power of both parties. In this article, the authors develop a framework to examine bargaining between channel members and demonstrate that the bargaining process actually affects the degree of coordination and that two-part tariffs will not be part of the market contract even in a simple one manufacturer–one retailer channel. To establish the institutional and theoretical bases for these results, the authors relax the conventional assumption that the product being exchanged is completely specifiable in a contract. They show that the institution of bargaining has force, and it affects channel coordination when the complexity of nonspecifiability of the product exchange is present. The authors find that greater retailer power promotes channel coordination. Thus, there are conditions in which the presence of a powerful retailer might actually be beneficial to all channel members. The authors recover the standard double-marginalization take-it-or-leave-it offer outcome as a particular case of the bargaining process. They also examine the implications of relative bargaining powers for whether the product is delivered " early " (i.e., before demand is realized) or " late " (i.e., delivered to the retailer only if there is demand). The authors present the implications for returns policies as well as of renegotiation costs and retail competition.
International Journal of Industrial Engineering & Production Research, 2019
This study analyzes a supply chain involving two competing manufacturers that sell their products through two common competing retailers. The manufacturers’ products are the same, yet come out with different brands in the market. The retailers face stochastic demand where demand is the decreasing function of price with an additive uncertain part. Manufacturers compete on supplying orders where retailers compete on selling price. Each manufacturer sets a wholesale price contract with retailers similarly. In this study, the supply chain coordination with the wholesale price contract under competition and demand uncertainty is examined. The analytical results show that, under coordinated conditions, manufacturers do not obtain any positive profit and, consequently, the retailers intend to increase wholesale prices. On the other hand, manufacturers can increase wholesale prices until the retailers’ profit becomes zero. Hence, with a numerical study for actual cases, it is found that cha...