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A manufacturer's optimal quantity discount strategy and return policy through game-theoretic approach

Author

Listed:
  • C-T Su

    (National Chiao Tung University)

  • C-S Shi

    (National Chiao Tung University)

Abstract

This study generalised the traditional quantity discount problem with return contracts, in which a manufacturer promises to refund some fraction of the retailer's wholesale price if an item is returned, as a two-stage game. In the first stage the manufacturer and retailer determine the inventory level cooperatively. In the second stage, the manufacturer bargains with the retailer for quantity discount and return schemes to maintain channel efficiency. A menu of discount–return combinations is proposed for the manufacturer to make inventory decisions. The model developed will demonstrate that the return policy can be considered as mirror images of quantity discount strategy. That is, options with more generous return privileges are coupled with higher wholesale prices, whereas the lowest wholesale price comes with very strict limits on returns and a restocking fee for any returned goods.

Suggested Citation

  • C-T Su & C-S Shi, 2002. "A manufacturer's optimal quantity discount strategy and return policy through game-theoretic approach," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 53(8), pages 922-926, August.
    • Handle: RePEc:pal:jorsoc:v:53:y:2002:i:8:d:10.1057_palgrave.jors.2601325
    DOI: 10.1057/palgrave.jors.2601325
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    Citations

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    Cited by:

    1. C-S Shi & C-T Su, 2004. "Integrated inventory model of returns-quantity discounts contract," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 55(3), pages 240-246, March.
    2. J-Y Lee, 2008. "Quantity discounts based on the previous order in a two-period inventory model with demand uncertainty," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 59(7), pages 1004-1011, July.
    3. Anna G. Devlin & Wedad Elmaghraby & Rebecca W. Hamilton, 2018. "Why do suppliers choose wholesale price contracts? End-of-season payments disincentivize retailer marketing effort," Journal of the Academy of Marketing Science, Springer, vol. 46(2), pages 212-233, March.
    4. Youkyung Won, 2016. "Dominance Relationship Among the Retailer’s Strategies Under the Semi-Stackelberg Newsvendor Situation with Quantity Discounts," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 33(02), pages 1-20, April.
    5. Gurnani, Haresh & Sharma, Arun & Grewal, Dhruv, 2010. "Optimal Returns Policy under Demand Uncertainty," Journal of Retailing, Elsevier, vol. 86(2), pages 137-147.

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