IDEAS home Printed from https://ideas.repec.org/a/eee/indorg/v59y2018icp486-513.html
   My bibliography  Save this article

Incentives through inventory control in supply chains

Author

Listed:
  • Qu, Zhan
  • Raff, Horst
  • Schmitt, Nicolas

Abstract

The paper shows that taking inventory control out of the hands of competitive or exclusive retailers and assigning it to a manufacturer increases the value of a supply chain especially for goods whose demand is highly volatile. This is because doing so solves incentive distortions that arise when retailers have to allocate inventory across sales periods, and thus allows for better intertemporal price discrimination. Assigning inventory control to a manufacturer is also shown to have effects on total inventory and social welfare.

Suggested Citation

  • Qu, Zhan & Raff, Horst & Schmitt, Nicolas, 2018. "Incentives through inventory control in supply chains," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 486-513.
    • Handle: RePEc:eee:indorg:v:59:y:2018:i:c:p:486-513
    DOI: 10.1016/j.ijindorg.2018.06.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167718718300596
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijindorg.2018.06.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Krishnan, Harish & Winter, Ralph A., 2012. "The Economic Foundations of Supply Chain Contracting," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 5(3–4), pages 147-309, September.
    2. Eyal Biyalogorsky & Oded Koenigsberg, 2010. "Ownership coordination in a channel: Incentives, returns, and negotiations," Quantitative Marketing and Economics (QME), Springer, vol. 8(4), pages 461-490, December.
    3. Taylor Randall & Serguei Netessine & Nils Rudi, 2006. "An Empirical Examination of the Decision to Invest in Fulfillment Capabilities: A Study of Internet Retailers," Management Science, INFORMS, vol. 52(4), pages 567-580, April.
    4. Gérard P. Cachon, 2004. "The Allocation of Inventory Risk in a Supply Chain: Push, Pull, and Advance-Purchase Discount Contracts," Management Science, INFORMS, vol. 50(2), pages 222-238, February.
    5. Andrew J. Clark & Herbert Scarf, 2004. "Optimal Policies for a Multi-Echelon Inventory Problem," Management Science, INFORMS, vol. 50(12_supple), pages 1782-1790, December.
    6. Krishnan Anand & Ravi Anupindi & Yehuda Bassok, 2008. "Strategic Inventories in Vertical Contracts," Management Science, INFORMS, vol. 54(10), pages 1792-1804, October.
    7. Raymond Deneckere & Howard P. Marvel & James Peck, 1996. "Demand Uncertainty, Inventories, and Resale Price Maintenance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 885-913.
    8. Woonghee Tim Huh & Ganesh Janakiraman, 2008. "Inventory Management with Auctions and Other Sales Channels: Optimality of (s, S) Policies," Management Science, INFORMS, vol. 54(1), pages 139-150, January.
    9. Varian, Hal R., 1989. "Price discrimination," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 10, pages 597-654, Elsevier.
    10. Deneckere, Raymond & Marvel, Howard P & Peck, James, 1997. "Demand Uncertainty and Price Maintenance: Markdowns as Destructive Competition," American Economic Review, American Economic Association, vol. 87(4), pages 619-641, September.
    11. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    12. Elena Belavina & Karan Girotra, 2012. "The Relational Advantages of Intermediation," Management Science, INFORMS, vol. 58(9), pages 1614-1631, September.
    13. Igal Hendel & Paolo Dudine & Alessandro Lizzeri, 2006. "Storable Good Monopoly: The Role of Commitment," American Economic Review, American Economic Association, vol. 96(5), pages 1706-1719, December.
    14. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-332, April.
    15. Winston Koh, 2006. "The micro-foundations of intertemporal price discrimination," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 27(2), pages 393-410, January.
    16. Kinshuk Jerath & Sang-Hyun Kim & Robert Swinney, 2017. "Product Quality in a Distribution Channel with Inventory Risk," Marketing Science, INFORMS, vol. 36(5), pages 747-761, September.
    17. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 2, number 2, May.
    18. Harish Krishnan & Ralph A. Winter, 2010. "Inventory Dynamics and Supply Chain Coordination," Management Science, INFORMS, vol. 56(1), pages 141-147, January.
    19. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1, May.
    20. Harish Krishnan & Ralph A. Winter, 2007. "Vertical Control of Price and Inventory," American Economic Review, American Economic Association, vol. 97(5), pages 1840-1857, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lenhard, Severin, 2022. "Imperfect competition with costly disposal," International Journal of Industrial Organization, Elsevier, vol. 82(C).
    2. Chris Muris & Horst Raff & Nicolas Schmitt & Frank Stähler, 2023. "Inventory, Sourcing, and the Effects of Trade Costs: Theory and Empirical Evidence," CESifo Working Paper Series 10253, CESifo.
    3. Lenhard, Severin, 2022. "Imperfect Competition with Costly Disposal," VfS Annual Conference 2022 (Basel): Big Data in Economics 264038, Verein für Socialpolitik / German Economic Association.
    4. Qu, Zhan & Raff, Horst, 2017. "Centralized versus decentralized inventory control in supply chains and the bullwhip effect," CEPIE Working Papers 17/17, Technische Universität Dresden, Center of Public and International Economics (CEPIE).
    5. QU, Zhan & RAFF, Horst, 2023. "Two-part tariffs, inventory stockpiling, and the bullwhip effect," European Journal of Operational Research, Elsevier, vol. 308(1), pages 201-214.
    6. Tianwen Song & Qiang Zhang & Junmu Ran & Wenxue Ran, 2021. "Research on Supplier Collaboration of Daily Consumer Goods under Uncertainty of Supply and Demand," Sustainability, MDPI, vol. 13(10), pages 1-15, May.
    7. Zhan Qu & Horst Raff, 2021. "Vertical Contracts in a Supply Chain and the Bullwhip Effect," Management Science, INFORMS, vol. 67(6), pages 3744-3756, June.
    8. Severin Lenhard, 2021. "Imperfect Competition with Costly Disposal," Diskussionsschriften dp2105, Universitaet Bern, Departement Volkswirtschaft.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhan Qu & Horst Raff, 2021. "Vertical Contracts in a Supply Chain and the Bullwhip Effect," Management Science, INFORMS, vol. 67(6), pages 3744-3756, June.
    2. Qu, Zhan & Raff, Horst & Schmitt, Nicolas, 2016. "A theory of intermediation in supply chains based on inventory control," CEPIE Working Papers 09/16, Technische Universität Dresden, Center of Public and International Economics (CEPIE).
    3. Fabio Antoniou & Raffaele Fiocco, 2019. "Strategic inventories under limited commitment," RAND Journal of Economics, RAND Corporation, vol. 50(3), pages 695-729, September.
    4. Harish Krishnan & Ralph A. Winter, 2010. "Inventory Dynamics and Supply Chain Coordination," Management Science, INFORMS, vol. 56(1), pages 141-147, January.
    5. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 15, pages 1073-1225, Elsevier.
    6. Simon P. Anderson & Régis Renault, 2011. "Price Discrimination," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 22, Edward Elgar Publishing.
    7. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    8. Morten Hviid & Greg Shaffer, 2012. "Optimal low-price guarantees with anchoring," Quantitative Marketing and Economics (QME), Springer, vol. 10(4), pages 393-417, December.
    9. Einer Elhauge & Barry Nalebuff, 2017. "The Welfare Effects of Metering Ties," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 33(1), pages 68-104.
    10. Noto, Claudio, 2020. "Airport slots, secondary trading, and congestion pricing at an airport with a dominant network airline," Research in Transportation Economics, Elsevier, vol. 79(C).
    11. repec:ehu:ikerla:6233 is not listed on IDEAS
    12. Fabio Caldieraro, 2016. "The Role of Brand Image and Product Characteristics on Firms’ Entry and OEM Decisions," Management Science, INFORMS, vol. 62(11), pages 3327-3350, November.
    13. Daniel Melser & Iqbal A. Syed, 2017. "The product life cycle and sample representativity bias in price indexes," Applied Economics, Taylor & Francis Journals, vol. 49(6), pages 573-586, February.
    14. Daniel Melser & Iqbal A. Syed, 2016. "Life Cycle Price Trends and Product Replacement: Implications for the Measurement of Inflation," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(3), pages 509-533, September.
    15. Fernando Bernstein & Awi Federgruen, 2007. "Coordination Mechanisms for Supply Chains Under Price and Service Competition," Manufacturing & Service Operations Management, INFORMS, vol. 9(3), pages 242-262, January.
    16. Iqbal Syed & Daniel Melser, 2008. "Prices over the Product Life Cycle: An Empirical Analysis," Discussion Papers 2008-25, School of Economics, The University of New South Wales.
    17. Lars A. Stole, 1995. "Nonlinear Pricing and Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(4), pages 529-562, December.
    18. Xue, Weili & Caliskan Demirag, Ozgun & Niu, Baozhuang, 2014. "Supply chain performance and consumer surplus under alternative structures of channel dominance," European Journal of Operational Research, Elsevier, vol. 239(1), pages 130-145.
    19. X. Wang & Bill Yang, 2010. "The sunk-cost effect and optimal two-part pricing," Journal of Economics, Springer, vol. 101(2), pages 133-148, October.
    20. Xiang Fang & Jun Ru & Yunzeng Wang, 2021. "The Effect of List Price on Channel Performance with Consignment," Production and Operations Management, Production and Operations Management Society, vol. 30(1), pages 235-252, January.
    21. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, November.

    More about this item

    Keywords

    Inventory; Supply chain; Demand uncertainty; Storable good; Price discrimination;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:59:y:2018:i:c:p:486-513. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505551 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.