Contractual Pricing Problems for Retail Distribution under Different Channel Structures
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In many industries, including the retail industry, the profits of a supply chain primarily come from the revenue determined by pricing decisions, while the costs of a supply chain are mainly determined by production and inventory decisions. Lack of coordination between the involved parties concerning pricing and inventory decisions may cost all parties in the supply chain system. Historically, contracts have been viewed and served as effective mechanisms to achieve supply chain coordination. In particular, a coordination contract is such that the total profit of the entities under the contract is equal to the optimal supply chain profit (a.k.a., system profit) under centralized control. Hence, profit potential of each entity is in fact maximized under a coordination contract. Also, a coordination contract is said to achieve the so-called channel coordination objective. In this context, we consider supplier-buyer (e.g., manufacturer-retailer) systems and take into account a recent trend shifting the leadership in contract design from the supplier to the buyer. In particular, we are interested in powerful entities (e.g., mass retailers or government) leading contractual efforts in various practical settings. We consider two classes of problems related to such powerful entities. We first study coordination efforts through contracts in single- and multi-product settings from the supplier- and buyer-driven perspectives by considering supplier- and buyer-driven contracts. Previous literature on the leadership shift focuses on the single-product setting while overlooking general buyer-driven contracts under full information. We propose more general buyer-driven contracts and provide a comparison of supplier- and buyer-driven settings in terms of the realized profit and prices while taking into account for not only the supplier's and buyer's but also the consumers' perspectives. Our results lead to a new buyer-driven contract called the generic contract: a simple, general, effective, and practical coordination contract which is amenable to generalization for handling multi-product, multi-supplier, and multi-buyer settings. Also, the generic contract offers room for negotiation between the buyer and supplier because even when the supplier is the more powerful entity. Last but not least, the generic contract is advantageous not only for the buyer and the supplier but also for the consumers. We next study a newsvendor problem for a private retailer where government interventions are implemented to induce the retailer to make socially optimal decisions. Very limited literature has studied the social welfare issue for public interest goods with random price-dependent demand, especially in the multiplicative form. We develop a model and methodology for designing government intervention mechanisms that improve/maximize the expected social welfare and analyze the impact of demand uncertainty on coordination performance. We consider two new government regulatory mechanisms, and a new market intervention along with two existing market interventions. Our results demonstrate that government regularity mechanisms are effective in improving the expected social welfare and using any combination of two market interventions achieves the optimal expected social welfare.
Zhao, Su (2014). Contractual Pricing Problems for Retail Distribution under Different Channel Structures. Doctoral dissertation, Texas A & M University. Available electronically from