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Integrated inventory model of returns-quantity discounts contract

Author

Listed:
  • C-S Shi

    (National Chiao Tung University)

  • C-T Su

    (National Chiao Tung University)

Abstract

In the traditional inventory problem, to secure demand risk a retailer often requests the right to return unsold goods, although this is associated with higher wholesale prices. Various studies have attempted to illustrate the returns scenario. However, these studies have focused on optimization from the retailer's perspective only, and have thus ignored the fact that the manufacturer might have no incentive to accept returns. This study takes account of the self-interest of both the retailer and the manufacturer, and demonstrates that a quantity discount scheme should provide the manufacturer with incentive to accept returns. A three-stage theoretical model is developed and presented to illustrate the returns-quantity discounts contract, and demonstrates that the contract is self-enforcing. Furthermore, it is demonstrated that Pareto efficiency can be attained in the model. The scenarios are illustrated through a numerical example.

Suggested Citation

  • 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.
    • Handle: RePEc:pal:jorsoc:v:55:y:2004:i:3:d:10.1057_palgrave.jors.2601676
    DOI: 10.1057/palgrave.jors.2601676
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    References listed on IDEAS

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    1. Hamilton Emmons & Stephen M. Gilbert, 1998. "Note. The Role of Returns Policies in Pricing and Inventory Decisions for Catalogue Goods," Management Science, INFORMS, vol. 44(2), pages 276-283, February.
    2. 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.
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    7. Kandel, Eugene, 1996. "The Right to Return," Journal of Law and Economics, University of Chicago Press, vol. 39(1), pages 329-356, April.
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    Cited by:

    1. Hsieh, Chung-Chi & Wu, Cheng-Han & Huang, Ya-Jing, 2008. "Ordering and pricing decisions in a two-echelon supply chain with asymmetric demand information," European Journal of Operational Research, Elsevier, vol. 190(2), pages 509-525, October.
    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. Sri Vanamalla Venkataraman & Dereje Asfaw, 2020. "Buyback contract under asymmetric information about retailer’s loss aversion nature," Annals of Operations Research, Springer, vol. 295(1), pages 385-409, December.

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