IDEAS home Printed from https://ideas.repec.org/a/inm/oropre/v54y2006i6p1110-1127.html
   My bibliography  Save this article

Joint Pricing-Production Decisions in Supply Chains of Complementary Products with Uncertain Demand

Author

Listed:
  • Yunzeng Wang

    (School of Management, University of Texas at Dallas, Richardson, Texas 75083)

Abstract

Consider n manufacturers, each producing a different product and selling it to a market, either directly or through a common retailer. The n products are perfectly complementary in the sense that they are always sold and consumed jointly or in sets of one unit of each. Demand for the products during a selling season is both price sensitive and uncertain. Each of the n manufacturers faces the problem of choosing a production quantity and a selling price for his product. Two settings are considered, regarding the decision sequence of the n manufacturers: They are either simultaneous or sequential. The retailer, when present, employs a consignment-sales contract with revenue sharing to bind her relationship with the manufacturers and to extract profit for herself. Using a multiplicative demand model in this paper, we fully characterize individual firms’ decisions in equilibria, under each of the two game settings, and derive closed-form performance measures, both for the channel and for individual channel members. These closed-form solutions allow us to explore the effects of channel structure and parameters on firms’ decisions and performance that lead to conclusions of managerial interest.

Suggested Citation

  • Yunzeng Wang, 2006. "Joint Pricing-Production Decisions in Supply Chains of Complementary Products with Uncertain Demand," Operations Research, INFORMS, vol. 54(6), pages 1110-1127, December.
    • Handle: RePEc:inm:oropre:v:54:y:2006:i:6:p:1110-1127
    DOI: 10.1287/opre.1060.0326
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/opre.1060.0326
    Download Restriction: no
    File URL: https://libkey.io/10.1287/opre.1060.0326?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
    ---><---

    References listed on IDEAS

    as
    1. Nicholas C. Petruzzi & Maqbool Dada, 1999. "Pricing and the Newsvendor Problem: A Review with Extensions," Operations Research, INFORMS, vol. 47(2), pages 183-194, April.
    2. Awi Federgruen & Aliza Heching, 1999. "Combined Pricing and Inventory Control Under Uncertainty," Operations Research, INFORMS, vol. 47(3), pages 454-475, June.
    3. Gal-Or, Esther, 1985. "First Mover and Second Mover Advantages," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 649-653, October.
    4. Fernando Bernstein & Awi Federgruen, 2005. "Decentralized Supply Chains with Competing Retailers Under Demand Uncertainty," Management Science, INFORMS, vol. 51(1), pages 18-29, January.
    5. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-489, March.
    6. Yunzeng Wang & Li Jiang & Zuo-Jun Shen, 2004. "Channel Performance Under Consignment Contract with Revenue Sharing," Management Science, INFORMS, vol. 50(1), pages 34-47, January.
    7. Fernando Bernstein & Awi Federgruen, 2004. "A General Equilibrium Model for Industries with Price and Service Competition," Operations Research, INFORMS, vol. 52(6), pages 868-886, December.
    8. Scott M. Carr & Uday S. Karmarkar, 2005. "Competition in Multiechelon Assembly Supply Chains," Management Science, INFORMS, vol. 51(1), pages 45-59, January.
    9. T. M. Whitin, 1955. "Inventory Control and Price Theory," Management Science, INFORMS, vol. 2(1), pages 61-68, October.
    10. S. Chan Choi, 1991. "Price Competition in a Channel Structure with a Common Retailer," Marketing Science, INFORMS, vol. 10(4), pages 271-296.
    11. Martin A. Lariviere, 2006. "A Note on Probability Distributions with Increasing Generalized Failure Rates," Operations Research, INFORMS, vol. 54(3), pages 602-604, June.
    12. Fernando Bernstein & Gregory A. DeCroix, 2006. "Inventory Policies in a Decentralized Assembly System," Operations Research, INFORMS, vol. 54(2), pages 324-336, April.
    13. Hamilton Emmons & Stephen M. Gilbert, 1998. "Note. The Role of Returns Policies in Pricing and Inventory Decisions for Catalogue Goods," Management Science, INFORMS, vol. 44(2), pages 276-283, February.
    14. Fernando Bernstein & Awi Federgruen, 2003. "Pricing and Replenishment Strategies in a Distribution System with Competing Retailers," Operations Research, INFORMS, vol. 51(3), pages 409-426, June.
    15. Martin A. Lariviere & Evan L. Porteus, 2001. "Selling to the Newsvendor: An Analysis of Price-Only Contracts," Manufacturing & Service Operations Management, INFORMS, vol. 3(4), pages 293-305, May.
    16. Brian Tomlin, 2003. "Capacity Investments in Supply Chains: Sharing the Gain Rather Than Sharing the Pain," Manufacturing & Service Operations Management, INFORMS, vol. 5(4), pages 317-333, November.
    17. Fernando Bernstein & Gregory A. DeCroix, 2004. "Decentralized Pricing and Capacity Decisions in a Multitier System with Modular Assembly," Management Science, INFORMS, vol. 50(9), pages 1293-1308, September.
    18. Yunzeng Wang & Yigal Gerchak, 2003. "Capacity Games in Assembly Systems with Uncertain Demand," Manufacturing & Service Operations Management, INFORMS, vol. 5(3), pages 252-267, January.
    Full references (including those not matched with items on IDEAS)

    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. Ayşe Kocabıyıkoğlu & Ioana Popescu, 2011. "An Elasticity Approach to the Newsvendor with Price-Sensitive Demand," Operations Research, INFORMS, vol. 59(2), pages 301-312, April.
    2. Ru, Jun & Wang, Yunzeng, 2010. "Consignment contracting: Who should control inventory in the supply chain?," European Journal of Operational Research, Elsevier, vol. 201(3), pages 760-769, March.
    3. Li Jiang & Yunzeng Wang, 2010. "Supplier Competition in Decentralized Assembly Systems with Price-Sensitive and Uncertain Demand," Manufacturing & Service Operations Management, INFORMS, vol. 12(1), pages 93-101, January.
    4. 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.
    5. Liu, Yong & Fry, Michael J. & Raturi, Amitabh S., 2009. "Retail price markup commitment in decentralized supply chains," European Journal of Operational Research, Elsevier, vol. 192(1), pages 277-292, January.
    6. Lee, Eunji & Minner, Stefan, 2024. "How power structure and markup schemes impact supply chain channel efficiency under price-dependent stochastic demand," European Journal of Operational Research, Elsevier, vol. 318(1), pages 297-309.
    7. Wu, Qing & Mu, Yinping & Feng, Yi, 2015. "Coordinating contracts for fresh product outsourcing logistics channels with power structures," International Journal of Production Economics, Elsevier, vol. 160(C), pages 94-105.
    8. Georgia Perakis & Guillaume Roels, 2007. "The Price of Anarchy in Supply Chains: Quantifying the Efficiency of Price-Only Contracts," Management Science, INFORMS, vol. 53(8), pages 1249-1268, August.
    9. Yuyue Song & Saibal Ray & Shanling Li, 2008. "Structural Properties of Buyback Contracts for Price-Setting Newsvendors," Manufacturing & Service Operations Management, INFORMS, vol. 10(1), pages 1-18, November.
    10. Woonghee Tim Huh & Kun Soo Park, 2013. "Impact of transfer pricing methods for tax purposes on supply chain performance under demand uncertainty," Naval Research Logistics (NRL), John Wiley & Sons, vol. 60(4), pages 269-293, June.
    11. Granot, Daniel & Yin, Shuya, 2007. "On sequential commitment in the price-dependent newsvendor model," European Journal of Operational Research, Elsevier, vol. 177(2), pages 939-968, March.
    12. Yun Fong Lim & Yunzeng Wang & Yue Wu, 2015. "Consignment Contracts with Revenue Sharing for a Capacitated Retailer and Multiple Manufacturers," Manufacturing & Service Operations Management, INFORMS, vol. 17(4), pages 527-537, October.
    13. Xiaoning Luo & Yanmin Jiang & Qiying Hu, 2010. "Supply chain coordination with shelf‐space and retail price dependent demand and heterogeneous retailers," Naval Research Logistics (NRL), John Wiley & Sons, vol. 57(8), pages 673-685, December.
    14. Liu, Yan & Shi, Hongyan & Petruzzi, Nicholas C., 2018. "Optimal quality and quantity provisions for centralized vs. decentralized distribution: Market size uncertainty effects," European Journal of Operational Research, Elsevier, vol. 265(3), pages 1144-1158.
    15. Daniel Granot & Shuya Yin, 2005. "On the effectiveness of returns policies in the price‐dependent newsvendor model," Naval Research Logistics (NRL), John Wiley & Sons, vol. 52(8), pages 765-779, December.
    16. Başak Kalkancı & Feryal Erhun, 2012. "Pricing Games and Impact of Private Demand Information in Decentralized Assembly Systems," Operations Research, INFORMS, vol. 60(5), pages 1142-1156, October.
    17. Wang, Jian-Cai & Lau, Amy Hing-Ling & Lau, Hon-Shiang, 2013. "Dollar vs. percentage markup pricing schemes under a dominant retailer," European Journal of Operational Research, Elsevier, vol. 227(3), pages 471-482.
    18. Elif Özcan-Tok, 2020. "Bargaining on supply chain networks with heterogeneous valuations," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 28(2), pages 506-525, July.
    19. Syed Asif Raza, 2022. "A bibliometric analysis of pricing models in supply chain," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(2), pages 228-251, April.
    20. Leng, Mingming & Parlar, Mahmut, 2010. "Game-theoretic analyses of decentralized assembly supply chains: Non-cooperative equilibria vs. coordination with cost-sharing contracts," European Journal of Operational Research, Elsevier, vol. 204(1), pages 96-104, July.

    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:inm:oropre:v:54:y:2006:i:6:p:1110-1127. 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: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    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.