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Article: Pricing and volume discounting for a dominant retailer with uncertain manufacturing cost information

TitlePricing and volume discounting for a dominant retailer with uncertain manufacturing cost information
Authors
KeywordsGame-theoretic models
Pricing
Supply-chain contracts
Supply-chain coordination
Issue Date2007
PublisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/ejor
Citation
European Journal Of Operational Research, 2007, v. 183 n. 2, p. 848-870 How to Cite?
AbstractA product costs the manufacturer c/unit to produce; the retailer sells it at p/unit to the consumers. The retail-market demand volume V varies with p according to a given demand curve Dp. How would or should the "players" (i.e., the manufacturer and the retailer) set their prices? In contrast to many studies that assume a dominant manufacturer implementing the "manufacturer-Stackelberg" ("[mS]") game, this paper examines how a dominant retailer should operate when his knowledge of c is imperfect. We first derive optimal decisions (some of them counter-intuitive) for the dominant retailer when he is restricted to choosing between [rS] (retailer-Stackelberg) and [mS]. Second, we propose a "reverse quantity discount" scheme that the dominant retailer (i.e., the downstream player) can offer to the manufacturer (note that the standard discount scheme is offered by the upstream player). We show that this discounting scheme is quite effective compared to the considerably more complicated though nevertheless theoretically optimal "menu of contracts." We also reveal a largely overlooked function of discounting; i.e., discounting enables an "ignorant" but dominant player to usurp the earnings attributable to the knowledge of the dominated player. Finally, we also show that discounting works well when the demand curve is linear, but becomes ineffective when the demand curve is iso-elastic - a result echoing the conclusions of some earlier related works. © 2006 Elsevier B.V. All rights reserved.
Persistent Identifierhttp://hdl.handle.net/10722/85752
ISSN
2015 Impact Factor: 2.679
2015 SCImago Journal Rankings: 2.595
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorLau, AHLen_HK
dc.contributor.authorLau, HSen_HK
dc.contributor.authorWang, JCen_HK
dc.date.accessioned2010-09-06T09:08:50Z-
dc.date.available2010-09-06T09:08:50Z-
dc.date.issued2007en_HK
dc.identifier.citationEuropean Journal Of Operational Research, 2007, v. 183 n. 2, p. 848-870en_HK
dc.identifier.issn0377-2217en_HK
dc.identifier.urihttp://hdl.handle.net/10722/85752-
dc.description.abstractA product costs the manufacturer c/unit to produce; the retailer sells it at p/unit to the consumers. The retail-market demand volume V varies with p according to a given demand curve Dp. How would or should the "players" (i.e., the manufacturer and the retailer) set their prices? In contrast to many studies that assume a dominant manufacturer implementing the "manufacturer-Stackelberg" ("[mS]") game, this paper examines how a dominant retailer should operate when his knowledge of c is imperfect. We first derive optimal decisions (some of them counter-intuitive) for the dominant retailer when he is restricted to choosing between [rS] (retailer-Stackelberg) and [mS]. Second, we propose a "reverse quantity discount" scheme that the dominant retailer (i.e., the downstream player) can offer to the manufacturer (note that the standard discount scheme is offered by the upstream player). We show that this discounting scheme is quite effective compared to the considerably more complicated though nevertheless theoretically optimal "menu of contracts." We also reveal a largely overlooked function of discounting; i.e., discounting enables an "ignorant" but dominant player to usurp the earnings attributable to the knowledge of the dominated player. Finally, we also show that discounting works well when the demand curve is linear, but becomes ineffective when the demand curve is iso-elastic - a result echoing the conclusions of some earlier related works. © 2006 Elsevier B.V. All rights reserved.en_HK
dc.languageengen_HK
dc.publisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/ejoren_HK
dc.relation.ispartofEuropean Journal of Operational Researchen_HK
dc.rightsEuropean Journal of Operational Research. Copyright © Elsevier BV.en_HK
dc.subjectGame-theoretic modelsen_HK
dc.subjectPricingen_HK
dc.subjectSupply-chain contractsen_HK
dc.subjectSupply-chain coordinationen_HK
dc.titlePricing and volume discounting for a dominant retailer with uncertain manufacturing cost informationen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0377-2217&volume=183&spage=848&epage=870&date=2007&atitle=Pricing+and+Volume+Discounting+for+a+Dominant+Retailer+with+Uncertain+Manufacturing+Cost+Informationen_HK
dc.identifier.emailLau, AHL: ahlau@business.hku.hken_HK
dc.identifier.emailWang, JC: wangjc@business.hku.hken_HK
dc.identifier.authorityLau, AHL=rp01072en_HK
dc.identifier.authorityWang, JC=rp01107en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1016/j.ejor.2006.10.017en_HK
dc.identifier.scopuseid_2-s2.0-34249977539en_HK
dc.identifier.hkuros137939en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-34249977539&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume183en_HK
dc.identifier.issue2en_HK
dc.identifier.spage848en_HK
dc.identifier.epage870en_HK
dc.identifier.isiWOS:000247827500027-
dc.publisher.placeNetherlandsen_HK
dc.identifier.scopusauthoridLau, AHL=7202626080en_HK
dc.identifier.scopusauthoridLau, HS=7201497264en_HK
dc.identifier.scopusauthoridWang, JC=15838282400en_HK

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