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Supply contracts in manufacturer‐retailer interactions with manufacturer‐quality and retailer effort‐induced demand

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  • Haresh Gurnani
  • Murat Erkoc

Abstract

We consider a decentralized distribution channel where demand depends on the manufacturer‐chosen quality of the product and the selling effort chosen by the retailer. The cost of selling effort is private information for the retailer. We consider three different types of supply contracts in this article: price‐only contract where the manufacturer sets a wholesale price; fixed‐fee contract where manufacturer sells at marginal cost but charges a fixed (transfer) fee; and, general franchise contract where manufacturer sets a wholesale price and charges a fixed fee as well. The fixed‐fee and general franchise contracts are referred to as two‐part tariff contracts. For each contract type, we study different contract forms including individual, menu, and pooling contracts. In the analysis of the different types and forms of contracts, we show that the price only contract is dominated by the general franchise menu contract. However, the manufacturer may prefer to offer the fixed‐fee individual contract as compared to the general franchise contract when the retailer's reservation utility and degree of information asymmetry in costs are high. © 2008 Wiley Periodicals, Inc. Naval Research Logistics, 2008

Suggested Citation

  • Haresh Gurnani & Murat Erkoc, 2008. "Supply contracts in manufacturer‐retailer interactions with manufacturer‐quality and retailer effort‐induced demand," Naval Research Logistics (NRL), John Wiley & Sons, vol. 55(3), pages 200-217, April.
    • Handle: RePEc:wly:navres:v:55:y:2008:i:3:p:200-217
    DOI: 10.1002/nav.20277
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    Cited by:

    1. Li, Tingting & Chen, Junlin, 2020. "Alliance formation in assembly systems with quality-improvement incentives," European Journal of Operational Research, Elsevier, vol. 285(3), pages 931-940.
    2. 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.
    3. Qiangfei Chai & Yiming Li & Zhongdong Xiao & Kee-hung Lai, 2022. "Optimal Carbon Abatement Strategy for Manufacturers under Cap-and-Trade," IJERPH, MDPI, vol. 19(17), pages 1-21, September.
    4. Bai, Qingguo & Gong, Yeming (Yale) & Jin, Mingzhou & Xu, Xianhao, 2019. "Effects of carbon emission reduction on supply chain coordination with vendor-managed deteriorating product inventory," International Journal of Production Economics, Elsevier, vol. 208(C), pages 83-99.
    5. Ratul Lahkar & Vinay Ramani, 2020. "Can incomplete information lead to better social outcomes?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(5), pages 771-783, July.
    6. Kopel, Michael & Ramani, Vinay, 2024. "The bright side of the planning fallacy in distribution channels," European Journal of Operational Research, Elsevier, vol. 314(2), pages 540-551.
    7. Avinadav, Tal & Chernonog, Tatyana & Ben-Zvi, Tal, 2019. "The effect of information superiority on a supply chain of virtual products," International Journal of Production Economics, Elsevier, vol. 216(C), pages 384-397.
    8. Junjun Liu & Yong Geng & Biao Chen & Xiqiang Xia, 2021. "The Effect of a Supplier’s Eco-Design on the Economic Benefits of a Supply Chain and Associated Coordination," IJERPH, MDPI, vol. 18(24), pages 1-18, December.
    9. Shizhen Bai & Yonggan Wang, 2022. "Green Investment Decision and Coordination in a Retailer-Dominated Supply Chain Considering Risk Aversion," Sustainability, MDPI, vol. 14(20), pages 1-36, October.
    10. Hanukov, Gabi, 2022. "A service system where junior servers approach a senior server on behalf of customers," International Journal of Production Economics, Elsevier, vol. 244(C).
    11. Neda Dabaghian & Reza Tavakkoli-Moghaddam & Ata Allah Taleizadeh & Mohammad Sadegh Moshtagh, 2022. "Channel coordination and profit distribution in a three-echelon supply chain considering social responsibility and product returns," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(3), pages 3165-3197, March.
    12. Yue Wang & Baoying Xin & Zhe Wang & Bangyi Li, 2019. "Managing Supplier-Manufacturer Closed-Loop Supply Chain Considering Product Design and Take-Back Legislation," IJERPH, MDPI, vol. 16(4), pages 1-26, February.
    13. Ma, Miaomiao & Meng, Weidong & Li, Yuyu & Huang, Bo, 2023. "Impact of dual credit policy on new energy vehicles technology innovation with information asymmetry," Applied Energy, Elsevier, vol. 332(C).
    14. Song, Jian & Chutani, Anshuman & Dolgui, Alexandre & Liang, Liang, 2021. "Dynamic innovation and pricing decisions in a supply-Chain," Omega, Elsevier, vol. 103(C).
    15. Gurnani, Haresh & Sharma, Arun & Grewal, Dhruv, 2010. "Optimal Returns Policy under Demand Uncertainty," Journal of Retailing, Elsevier, vol. 86(2), pages 137-147.
    16. Wen Tong & Jianbang Du & Fu Zhao & Dong Mu & John W. Sutherland, 2019. "Optimal Joint Production and Emissions Reduction Strategies Considering Consumers’ Environmental Preferences: A Manufacturer’s Perspective," Sustainability, MDPI, vol. 11(2), pages 1-15, January.
    17. Yong Zha & Jiahong Zhang & Xiaohang Yue & Zhongsheng Hua, 2015. "Service supply chain coordination with platform effort-induced demand," Annals of Operations Research, Springer, vol. 235(1), pages 785-806, December.
    18. repec:bla:annpce:v:89:y:2018:i:1:p:235-249 is not listed on IDEAS
    19. Peng Wu & Yixi Yin & Shiying Li & Yulong Huang, 2018. "Low-Carbon Supply Chain Management Considering Free Emission Allowance and Abatement Cost Sharing," Sustainability, MDPI, vol. 10(7), pages 1-18, June.
    20. Yue Chen & Sai-Ho Chung & Shu Guo, 2020. "Franchising contracts in fashion supply chain operations: models, practices, and real case study," Annals of Operations Research, Springer, vol. 291(1), pages 83-128, August.
    21. Nur Ayvaz‐Çavdaroğlu & Burak Kazaz & Scott Webster, 2021. "Incentivizing Farmers to Invest in Quality through Quality‐Based Payment," Production and Operations Management, Production and Operations Management Society, vol. 30(10), pages 3812-3830, October.

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