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Simplicity is beauty: pricing coordination in two-product supply chains with simplest contracts under voluntary compliance

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  • Bin Shen
  • Xiaoyan Xu
  • Tsan-Ming Choi

Abstract

Pricing is an important topic in supply chains. In this paper, we explore the coordination challenge with the use of simplest contracts for the case with two products. To be specific, we consider a single-manufacturer single-retailer make-to-order supply chain. In the base model, we consider the case when the product demands are independent and derive the optimal pricing decisions under a decentralised setting. Comparing with the centralised setting, we show that double marginalisation in the decentralised setting reduces the supply chain efficiency by 25%. We then find that the simpler contracts such as the three-parameter two-part tariff (3P-TT) contract and the three-parameter revenue sharing (3P-RS) contract can coordinate the two-product supply chain. We extend the analysis in two cases: (i) the case when the products are substitutable and (ii) the case when the retailer is risk averse, and show that both the 3P-TT and 3P-RS contracts can coordinate the respective supply chain. We also find that the degrees of product substitution and retailer’s risk averse significantly influence the supply chain performance.

Suggested Citation

  • Bin Shen & Xiaoyan Xu & Tsan-Ming Choi, 2019. "Simplicity is beauty: pricing coordination in two-product supply chains with simplest contracts under voluntary compliance," International Journal of Production Research, Taylor & Francis Journals, vol. 57(9), pages 2769-2787, May.
    • Handle: RePEc:taf:tprsxx:v:57:y:2019:i:9:p:2769-2787
    DOI: 10.1080/00207543.2018.1530474
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    Citations

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    Cited by:

    1. Choi, Tsan-Ming & Wang, Yingjia & Shen, Bin, 2022. "Selling to Profit-Target-Oriented retailers: Optimal supply chain contracting with bargaining," International Journal of Production Economics, Elsevier, vol. 250(C).
    2. Liangjie Xia & Yongwan Bai & Sanjoy Ghose & Juanjuan Qin, 2022. "Differential game analysis of carbon emissions reduction and promotion in a sustainable supply chain considering social preferences," Annals of Operations Research, Springer, vol. 310(1), pages 257-292, March.
    3. Johari, Maryam & Hosseini-Motlagh, Seyyed-Mahdi & Rasti-Barzoki, Morteza, 2019. "An evolutionary game theoretic model for analyzing pricing strategy and socially concerned behavior of manufacturers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 128(C), pages 506-525.
    4. Zhen Zhang & Songtao Zhang & Mingshi Yue, 2021. "Joint pricing and replenishment policies for risk‐averse retailers under duopolistic competition," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(7), pages 1849-1864, October.
    5. Sun, Yanhong & Sheng, Yiyun & Yan, Shuai & Zhang, Wei, 2023. "Pricing strategies in reward-based crowdfunding: Whether to introduce price guarantee?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 170(C).
    6. Choi, Tsan-Ming & Guo, Shu, 2020. "Is a ‘free lunch’ a good lunch? The performance of zero wholesale price-based supply-chain contracts," European Journal of Operational Research, Elsevier, vol. 285(1), pages 237-246.
    7. Ying Gao & Jianteng Xu & Huixin Xu, 2021. "A Flexible Cap-and-Trade Policy and Limited Demand Information Effects on a Sustainable Supply Chain," Sustainability, MDPI, vol. 13(19), pages 1-23, September.
    8. Wu, Meng & Ran, Yun & Zhu, Stuart X., 2022. "Optimal pricing strategy: How to sell to strategic consumers?," International Journal of Production Economics, Elsevier, vol. 244(C).
    9. 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.
    10. Bin Shen & Yifan Cao & Xiaoyan Xu, 2020. "Product line design and quality differentiation for green and non-green products in a supply chain," International Journal of Production Research, Taylor & Francis Journals, vol. 58(1), pages 148-164, January.
    11. Jianteng Xu & Qingguo Bai & Qian Luo, 2023. "Energy conservation strategy and coordination of a closed-loop supply chain with risk-averse members under carbon tax regulation," Operational Research, Springer, vol. 23(3), pages 1-39, September.

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