Designing Contracts for Irrational but Predictable Newsvendor
Supply contracts are used to align the incentives of channel members and there exists a rich body of literature that analyzes how different types of supply contracts can be used to do so (for an overview see Cachon, 2003). Buyers in a channel are typically modeled in one of two ways: either as a monopolist facing a downward-sloping market demand (see Tsay and Lovejoy, 1999) or as a newsvendor facing an exogenous retail price and random market demand (Lariviere, 1998). We focus on the newsvendor-buyers.
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