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Pricing and sales-effort investment under bi-criteria in a supply chain of virtual products involving risk

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  • Chernonog, Tatyana
  • Avinadav, Tal
  • Ben-Zvi, Tal

Abstract

This work develops a stochastic model of a two-echelon supply chain of virtual products in which the decision makers—a manufacturer and a retailer—may be risk-sensitive. Virtual products allow the retailer to avoid holding costs and ensure timely fulfillment of demand with no risk of shortage. We expand on the work of Chernonog and Avinadav (2014), who investigated the pricing of virtual products under uncertain and price-dependent demand, by including sales-effort as a decision variable that affects demand. Whereas in the previous work equilibrium was obtained exactly as in a deterministic case for any utility function, herein it is not. Consequently, we focus on the strategies of both the manufacturer and the retailer under different profit criteria, including the use of bi-criteria. By formulating the problem as a Stackelberg game, we show that the problem can be analytically solved by assuming certain common structures of the demand function and of the preferences of both the manufacturer and the retailer with regard to risk. We extend the solution to the case of imperfect information regarding the preferences and offer guidelines for the formation of efficient sets of decisions under bi-criteria. Finally, we provide numerical results.

Suggested Citation

  • Chernonog, Tatyana & Avinadav, Tal & Ben-Zvi, Tal, 2015. "Pricing and sales-effort investment under bi-criteria in a supply chain of virtual products involving risk," European Journal of Operational Research, Elsevier, vol. 246(2), pages 471-475.
  • Handle: RePEc:eee:ejores:v:246:y:2015:i:2:p:471-475
    DOI: 10.1016/j.ejor.2015.05.024
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    Cited by:

    1. Avinadav, Tal & Levy, Priel, 2022. "Value of information in a mobile app supply chain under hidden or known information superiority," International Journal of Production Economics, Elsevier, vol. 248(C).
    2. Avinadav, Tal, 2020. "The effect of decision rights allocation on a supply chain of perishable products under a revenue-sharing contract," International Journal of Production Economics, Elsevier, vol. 225(C).
    3. Chernonog, Tatyana, 2020. "Inventory and marketing policy in a supply chain of a perishable product," International Journal of Production Economics, Elsevier, vol. 219(C), pages 259-274.
    4. Chen, Yuwen & Ni, John & Yu, Degan, 2019. "Application developers’ product offering strategies in multi-platform markets," European Journal of Operational Research, Elsevier, vol. 273(1), pages 320-333.
    5. Chernonog, Tatyana & Avinadav, Tal & Ben-Zvi, Tal, 2019. "How to set price and quality in a supply chain of virtual products under bi-criteria and risk consideration," International Journal of Production Economics, Elsevier, vol. 209(C), pages 156-163.
    6. Avinadav, Tal & Chernonog, Tatyana & Ben-Zvi, Tal, 2019. "The effect of information superiority on a supply chain of virtual products," International Journal of Production Economics, Elsevier, vol. 216(C), pages 384-397.
    7. Avinadav, Tal & Chernonog, Tatyana & Khmelnitsky, Eugene, 2021. "Revenue-sharing between developers of virtual products and platform distributors," European Journal of Operational Research, Elsevier, vol. 290(3), pages 927-945.
    8. Avinadav, Tal & Chernonog, Tatyana & Meilijson, Isaac & Perlman, Yael, 2022. "A consignment contract with revenue sharing between an app developer and a distribution platform," International Journal of Production Economics, Elsevier, vol. 243(C).
    9. Zhao, Lianxia & Guo, Wen & Fang, Shu-Cherng & An, Qi, 2024. "Enhancing supply chain coordination through transparency initiatives to mitigate product returns," Journal of Retailing and Consumer Services, Elsevier, vol. 78(C).
    10. Chernonog, Tatyana & Avinadav, Tal, 2019. "Pricing and advertising in a supply chain of perishable products under asymmetric information," International Journal of Production Economics, Elsevier, vol. 209(C), pages 249-264.
    11. Shuiwang Zhang & Jingcheng Ding & Qianlan Ding, 2023. "Retailer-Led Low-Carbon Supply Chain Coordination Considering Sales Effort," Sustainability, MDPI, vol. 15(13), pages 1-24, July.
    12. Sun, Mingyao & Ng, Chi To & Yang, Liu & Zhang, Tianhua, 2024. "Optimal after-sales service offering strategy: Additive manufacturing, traditional manufacturing, or hybrid?," International Journal of Production Economics, Elsevier, vol. 268(C).

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