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Usefulness of resale price maintenance under different levels of sales-effort cost and system-parameter uncertainties

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  • Lau, Amy Hing Ling
  • Lau, Hon-Shiang
  • Wang, Jian-Cai

Abstract

This paper on "resale price maintenance" (RPM) has three main parts: (i) Using a simple and parsimonious model, we show that even with only one retailer, a "supplier" or "manufacturer" (hereafter "Manu") should impose minimum-RPM under some circumstances but maximum-RPM in others. These two sets of circumstances are defined by a very simple formula. (ii) While most earlier RPM models assume that the decision makers have deterministic knowledge of the system parameters, we present formulations and solution procedures for optimizing RPM schemes when Manu is uncertain about a system parameter's value. (iii) We show that if Manu has to estimate certain key system parameters under uncertainties, then in many situations RPM rapidly becomes unattractive even when these uncertainties are still quite low. This constitutes one often-applicable explanation why RPM is not as widely used as it should be theoretically.

Suggested Citation

  • Lau, Amy Hing Ling & Lau, Hon-Shiang & Wang, Jian-Cai, 2010. "Usefulness of resale price maintenance under different levels of sales-effort cost and system-parameter uncertainties," European Journal of Operational Research, Elsevier, vol. 203(2), pages 513-525, June.
    • Handle: RePEc:eee:ejores:v:203:y:2010:i:2:p:513-525
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    2. Xue, Weili & Caliskan Demirag, Ozgun & Niu, Baozhuang, 2014. "Supply chain performance and consumer surplus under alternative structures of channel dominance," European Journal of Operational Research, Elsevier, vol. 239(1), pages 130-145.
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    6. 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.
    7. Avinadav, Tal & Levy, Priel, 2022. "Value of information in a mobile app supply chain under hidden or known information superiority," International Journal of Production Economics, Elsevier, vol. 248(C).
    8. Tian, Longmei & Hu, Benyong, 2023. "The impacts of blockchain adoption on pricing and efforts decisions in online game supply chains with information asymmetry," International Journal of Production Economics, Elsevier, vol. 266(C).
    9. Chernonog, Tatyana, 2020. "Inventory and marketing policy in a supply chain of a perishable product," International Journal of Production Economics, Elsevier, vol. 219(C), pages 259-274.
    10. 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.
    11. Wang, Yao-Yu & Wang, Jian-Cai & Shou, Biying, 2013. "Pricing and effort investment for a newsvendor-type product," European Journal of Operational Research, Elsevier, vol. 229(2), pages 422-432.
    12. Ma, Peng & Wang, Haiyan & Shang, Jennifer, 2013. "Contract design for two-stage supply chain coordination: Integrating manufacturer-quality and retailer-marketing efforts," International Journal of Production Economics, Elsevier, vol. 146(2), pages 745-755.

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