Simplicity is beauty: pricing coordination in two-product supply chains with simplest contracts under voluntary compliance
Journal
International Journal of Production Research
Journal Volume
57
Journal Issue
9
Pages
2769-2787
Date Issued
2019
Author(s)
Abstract
Pricing is an important topic in supply chains. In this paper, we explore the coordination challenge with the use of simplest contracts for the case with two products. To be specific, we consider a single-manufacturer single-retailer make-to-order supply chain. In the base model, we consider the case when the product demands are independent and derive the optimal pricing decisions under a decentralised setting. Comparing with the centralised setting, we show that double marginalisation in the decentralised setting reduces the supply chain efficiency by 25%. We then find that the simpler contracts such as the three-parameter two-part tariff (3P-TT) contract and the three-parameter revenue sharing (3P-RS) contract can coordinate the two-product supply chain. We extend the analysis in two cases: (i) the case when the products are substitutable and (ii) the case when the retailer is risk averse, and show that both the 3P-TT and 3P-RS contracts can coordinate the respective supply chain. We also find that the degrees of product substitution and retailer? risk averse significantly influence the supply chain performance. ? 2018, ? 2018 Informa UK Limited, trading as Taylor & Francis Group.
Subjects
contracts; pricing; revenue sharing contract; supply chain coordination; two-part tariff; voluntary compliance
Other Subjects
Contracts; Costs; Risk analysis; Risk assessment; Sales; Product substitutions; Revenue sharing contracts; Supply chain coordination; Supply chain efficiency; Supply chain performance; Three parameters; Two-part tariff; voluntary compliance; Supply chains
Publisher
Taylor and Francis Ltd.
Type
journal article