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Optimal Prices and Inventories Decisions on Returns Policy with Practical Examples Thorough a Stackelberg Game

Author

Listed:
  • Kuo-Hsien Wang

    (Takming University of Science and Technology)

  • Yu-Je Lee

    (Takming University of Science and Technology)

  • Che-Tsung Tung

    (Takming University of Science and Technology)

Abstract

This study explores a Stackelberg game that consists of a manufacturer who is a leader manufacturing newsvendor-type products, and two retailers who are two followers selling the products in a stochastic demand market that is divided into two various prices sub-markets allowing demand leakage from a high-priced market to a low-priced market. The objective of the game is that the manufacturer offers a returns policy contract in an effort that not only to maximize its expected profit by determining wholesale price and buy-back price, but also to improve the two retailers’ expected profits by determining their prices and order sizes. We develop a simple solution procedure to the case of uniformly distributed demand, and thereby conduct a string of examples incorporating with the factors of demand leakage rate, consumers’ price-sensitivity and demand variability. Many significant contributions of this study include: the chain should give up some sales opportunity in high price-sensitive markets and then offset back from low price-sensitive ones; the two retailers jointly bear the entire risk of demand uncertainty; and the returns policy contract indeed outperforms a price-only contract although it is not the Pareto improvement to low-priced market segment.

Suggested Citation

  • Kuo-Hsien Wang & Yu-Je Lee & Che-Tsung Tung, 2013. "Optimal Prices and Inventories Decisions on Returns Policy with Practical Examples Thorough a Stackelberg Game," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(2), pages 66-77, April.
    • Handle: RePEc:hur:ijaraf:v:3:y:2013:i:2:p:66-77
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    References listed on IDEAS

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