The Contract Design for a Two-tier Supply Chain in the Market of Scarce Goods
Date Issued
2012
Date
2012
Author(s)
Chang, Pei-yu
Abstract
An unexpected supply chain disruption or a strong demand in a retail market causes some goods to become scarce. Some branding companies agree to a higher price with more quantity of the goods to secure needed components from the key parts suppliers. The purchase price and the acquired quantity behave a positive relation. This study focuses on this uncommon, but important characteristic case and designs the transaction contracts for the business to business market (B2B). We introduce a Stackelberg-type model consisting of a leader (the upstream firm) and a follower (the downstream firm). The upstream firm determines the form of positive relationship between the unit purchase price and the acquired quantity in the contract to maximize its profits where the downstream firm chooses the acquired quantity of goods after learning the contract variable announced by the upstream firm to maximize its profit function. There are two proposed models, linear contract model and step function contract model, to describe the positive relationship under two different charging schemes, uniform and block pricing scheme. We summarize the possible situations of the behaviors of the downstream firm and obtain the corresponding decisions of the upstream and downstream firms.
Subjects
Stackelberg
Contract design
Scarcity
Pricing Scheme
Positive relationship between price and quantity
Type
thesis
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