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Retailer shelf-space management with trade allowance: A Stackelberg game between retailer and manufacturers

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  • Tsao, Yu-Chung
  • Lu, Jye-Chyi
  • An, Na
  • Al-Khayyal, Faiz
  • Lu, Richard W.
  • Han, Guanghua

Abstract

Motivated by the significant influence of trade allowance on store operation and the efficiency of shelf-space allocation, this article develops a model for optimizing category-level shelf-space management. A category shelf-space allocation framework with trade allowance is presented and a multi-player Retailer Stackelberg game is introduced to model the interaction between retailer and manufacturers. With this framework, a retailer maximizes profit by taking the manufacturers' trade allowance response into account, which provides a realistic approach of simultaneously determining the shelf-space and trade promotion decisions under the consideration of interactions among products. A piecewise linearization method is employed to reformulate the Mixed Integer Nonlinear Programming (MINLP) problem into a linear MIP problem for optimal solutions. Numerical examples demonstrate significant advantage of the proposed framework and quantitative analysis leads to a variety of managerial insights.

Suggested Citation

  • Tsao, Yu-Chung & Lu, Jye-Chyi & An, Na & Al-Khayyal, Faiz & Lu, Richard W. & Han, Guanghua, 2014. "Retailer shelf-space management with trade allowance: A Stackelberg game between retailer and manufacturers," International Journal of Production Economics, Elsevier, vol. 148(C), pages 133-144.
    • Handle: RePEc:eee:proeco:v:148:y:2014:i:c:p:133-144
    DOI: 10.1016/j.ijpe.2013.09.018
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    Cited by:

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    2. Mou, Shandong & Robb, David J. & DeHoratius, Nicole, 2018. "Retail store operations: Literature review and research directions," European Journal of Operational Research, Elsevier, vol. 265(2), pages 399-422.
    3. Czerniachowska Kateryna & Lutosławski Krzysztof & Hernes Marcin, 2022. "Linear and nonlinear shelf space allocation problems with vertical and horizontal bands," Journal of Economics and Management, Sciendo, vol. 44(1), pages 119-141, January.
    4. Tsao, Yu-Chung, 2015. "Cooperative promotion under demand uncertainty," International Journal of Production Economics, Elsevier, vol. 167(C), pages 45-49.
    5. Zhao, Ju & Zhou, Yong-Wu & Wahab, M.I.M., 2016. "Joint optimization models for shelf display and inventory control considering the impact of spatial relationship on demand," European Journal of Operational Research, Elsevier, vol. 255(3), pages 797-808.
    6. Kim, Gwang & Moon, Ilkyeong, 2021. "Integrated planning for product selection, shelf-space allocation, and replenishment decision with elasticity and positioning effects," Journal of Retailing and Consumer Services, Elsevier, vol. 58(C).

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