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Article: Volume discounting coordinates a supply chain effectively when demand is sensitive to both price and sales effort

TitleVolume discounting coordinates a supply chain effectively when demand is sensitive to both price and sales effort
Authors
KeywordsAnalytical tractability
Channel efficiency
Contract design
Market demand
Market sizes
Issue Date2012
PublisherPergamon. The Journal's web site is located at http://www.elsevier.com/locate/cor
Citation
Computers & Operations Research, 2012, v. 39 n. 12, p. 3267-3280 How to Cite?
AbstractIn this paper, we use a simple and parsimonious model to investigate the performance of volume discounting schemes (hereafter [VD]) in a supply chain where the market demand is sensitive to both retail price p and sales effort e - hereafter called a (p,e)-channel. The problem is analyzed as a manufacturer-leading Stackelberg game. We first present, for the deterministic-system-parameter situation, contract-designing procedures under two contract formats; namely, a regular version of [VD] (hereafter [RVD]) and a continuous version of [VD] (hereafter [CVD]). Our solutions show that [RVD] cannot perfectly coordinate this (p,e)-sensitive channel; moreover, very often [RVD] leads to a lower channel efficiency than the simple price-only contract. In contrast, we show that [CVD] leads to perfect channel coordination - a significant result since most contract formats have been shown in the literature to be unable to coordinate a (p,e)-channel. Next, we consider the more realistic situations in which the manufacturer is uncertain about one of the system parameters - specifically, either the market size a or the effort cost η. Our results show that, if Manu is uncertain about a, [RVD] becomes useless but the manufacturer can still use [CVD] to benefit himself. When the manufacturer is uncertain about η, [CVD] remains useful (as expected); however, surprisingly, [RVD] can outperform [CVD] when both the mean value and the uncertainty of η are sufficient high. These results underline the necessity of evaluating a contract format under various forms of system-parameter uncertainties - often at the expense of analytical tractability. © 2012 Elsevier Ltd. All rights reserved.
Persistent Identifierhttp://hdl.handle.net/10722/166797
ISSN
2015 Impact Factor: 1.988
2015 SCImago Journal Rankings: 2.237
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorLau, HSen_US
dc.contributor.authorSu, Cen_US
dc.contributor.authorWang, YYen_US
dc.contributor.authorHua, ZSen_US
dc.date.accessioned2012-09-20T08:48:29Z-
dc.date.available2012-09-20T08:48:29Z-
dc.date.issued2012en_US
dc.identifier.citationComputers & Operations Research, 2012, v. 39 n. 12, p. 3267-3280en_US
dc.identifier.issn0305-0548en_US
dc.identifier.urihttp://hdl.handle.net/10722/166797-
dc.description.abstractIn this paper, we use a simple and parsimonious model to investigate the performance of volume discounting schemes (hereafter [VD]) in a supply chain where the market demand is sensitive to both retail price p and sales effort e - hereafter called a (p,e)-channel. The problem is analyzed as a manufacturer-leading Stackelberg game. We first present, for the deterministic-system-parameter situation, contract-designing procedures under two contract formats; namely, a regular version of [VD] (hereafter [RVD]) and a continuous version of [VD] (hereafter [CVD]). Our solutions show that [RVD] cannot perfectly coordinate this (p,e)-sensitive channel; moreover, very often [RVD] leads to a lower channel efficiency than the simple price-only contract. In contrast, we show that [CVD] leads to perfect channel coordination - a significant result since most contract formats have been shown in the literature to be unable to coordinate a (p,e)-channel. Next, we consider the more realistic situations in which the manufacturer is uncertain about one of the system parameters - specifically, either the market size a or the effort cost η. Our results show that, if Manu is uncertain about a, [RVD] becomes useless but the manufacturer can still use [CVD] to benefit himself. When the manufacturer is uncertain about η, [CVD] remains useful (as expected); however, surprisingly, [RVD] can outperform [CVD] when both the mean value and the uncertainty of η are sufficient high. These results underline the necessity of evaluating a contract format under various forms of system-parameter uncertainties - often at the expense of analytical tractability. © 2012 Elsevier Ltd. All rights reserved.-
dc.languageengen_US
dc.publisherPergamon. The Journal's web site is located at http://www.elsevier.com/locate/coren_US
dc.relation.ispartofComputers & Operations Researchen_US
dc.subjectAnalytical tractability-
dc.subjectChannel efficiency-
dc.subjectContract design-
dc.subjectMarket demand-
dc.subjectMarket sizes-
dc.titleVolume discounting coordinates a supply chain effectively when demand is sensitive to both price and sales efforten_US
dc.typeArticleen_US
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0305-0548&volume=39&spage=3267&epage=3280&date=2012&atitle=Volume+Discounting+Coordinates+a+Supply+Chain+Effectively+when+Demand+Is+Sensitive+to+Both+Price+and+Sales+Efforten_US
dc.identifier.emailLau, HS: mshslau@hku.hken_US
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1016/j.cor.2012.04.014-
dc.identifier.scopuseid_2-s2.0-84862989342-
dc.identifier.hkuros209971en_US
dc.identifier.volume39en_US
dc.identifier.issue12-
dc.identifier.spage3267en_US
dc.identifier.epage3280en_US
dc.identifier.isiWOS:000313379300031-
dc.publisher.placeUnited Kingdom-
dc.identifier.citeulike10846708-

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