Two-part tariff contract design for a supplier base: A unifying methodology
Journal
IMA Journal of Management Mathematics
Journal Volume
33
Journal Issue
3
Pages
417-432
Date Issued
2022
Author(s)
Abstract
Conventional contract designs largely aim to coordinate decisions in dyadic relationships. In the new era of network environments and near-zero variable costs for many goods and services, a different approach to contract design is required for two reasons. First, offering a set of contracts to multiple contractors of different objectives, sizes, and business practices will allow each to choose the most suitable contract. Second, given that most previous studies have not considered quasi-fixed costs, it is helpful to understand two-part tariff contracts and their variants for a supplier base, new variants based on quasi-fixed costs, and related decision sequences between the parties in a supply chain. We propose a unifying methodology to set the contract parameters so that the different variants will have comparable performance outcomes. The results and the insights gained suggest that the proposed methodology should improve a retailer's management of its supplier base and also benefit all parties throughout the supply chain. © 2021 The Author(s) 2021. Published by Oxford University Press on behalf of the Institute of Mathematics and its Applications. All rights reserved.
Subjects
online retailing; quasi-fixed cost; sponsored search advertising; supply contract design; two-part tariff; value network
Other Subjects
Costs; Advertizing; Contract design; Fixed cost; Online retailing; Quasi-fixed cost; Sponsored search advertizing; Sponsored searches; Supply contract design; Supply contracts; Two-part tariff; Value network; Supply chains
Type
journal article