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Pricing/inventory decisions and profit shares in a non-integrated marketing channel for a single-period product

Author

Listed:
  • H-S Lau

    (City University of Hong Kong)

  • A H-L Lau

    (Hong Kong Polytechnic University)

  • J F Kottas

    (College of William and Mary)

Abstract

We consider the situation in which the manufacturer of a single-period product first sets the unit wholesale price and then the retailer responds with an order size. We present mostly analytical results on the effects of the problem's environmental parameters (such as shortage cost and demand uncertainty) on the optimal decisions (ie, the unit wholesale price and retailer's order size) and on the expected profits of the manufacturer and of the retailer. Some of these effects are counter-intuitive and/or contradict related results published recently for similar models. The most important finding is that demand uncertainty is always harmful to the manufacturer but is very often beneficial to the retailer. This means that when the manufacturer can set the wholesale price, the manufacturer should be much more supportive (or even aggressive) than previously advised towards activities such as market surveys and ‘Quick Response’ that reduce the retailer's market uncertainty; in contrast, the retailer need not be as enthusiastic about these activities.

Suggested Citation

  • H-S Lau & A H-L Lau & J F Kottas, 2001. "Pricing/inventory decisions and profit shares in a non-integrated marketing channel for a single-period product," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 52(6), pages 682-690, June.
    • Handle: RePEc:pal:jorsoc:v:52:y:2001:i:6:d:10.1057_palgrave.jors.2601131
    DOI: 10.1057/palgrave.jors.2601131
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    Cited by:

    1. Noori-Daryan, Mahsa & Taleizadeh, Ata Allah & Jolai, Fariborz, 2019. "Analyzing pricing, promised delivery lead time, supplier-selection, and ordering decisions of a multi-national supply chain under uncertain environment," International Journal of Production Economics, Elsevier, vol. 209(C), pages 236-248.

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