Abstract
Consider a manufacturer or wholesaler who supplies some item to retailers facing demand rates which depend on the shelf or display space devoted to that product by themselves and their competitors. The manufacturer, via the use of financial levers at her disposal, wishes to coordinate this decentralized chain while making a profit. With a single retailer, we show that the manufacturer can achieve this goal by using a two-parameter contract: a wholesale price and an inventory holding costs subsidy offered to the retailer. When multiple retailers compete in that product’s market, there are two ways to envision and model the demand and market split. One assumes that market demand depends on aggregate inventory displayed, and then splits according to individual display levels. The other “assigns” customers to retailers according to their display levels, and then assumes that purchases are a function of the display level at the retailer selected. We characterize retailers’ Nash equilibria in these models, and explore whether the manufacturer can coordinate such channels. Information requirements for channel coodination and profit allocation are discussed throughout the analysis.
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Wang, Y., Gerchak, Y. (2002). Supply Chain Contracting and Coordination with Shelf-Space-Dependent Demand. In: Geunes, J., Pardalos, P.M., Romeijn, H.E. (eds) Supply Chain Management: Models, Applications, and Research Directions. Applied Optimization, vol 62. Springer, Boston, MA. https://doi.org/10.1007/0-306-48172-3_7
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DOI: https://doi.org/10.1007/0-306-48172-3_7
Publisher Name: Springer, Boston, MA
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