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Mean-variance analysis of supply chains under wholesale pricing and profit sharing schemes

  • Wei, Ying
  • Choi, Tsan-Ming
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    In this paper, we explore the use of a wholesale pricing and profit sharing scheme (WPPS) for coordinating supply chains under the mean-variance (MV) decision framework. We first analytically establish the necessary and sufficient conditions for coordinating the centralized supply chain by WPPS. We then show that there exists a unique equilibrium of the Stackelberg game with WPPS in the decentralized case. After that, we discuss the information asymmetric case in which the retailer can be benefited by pretending to be more risk averse. Finally, we propose a new measure for the manufacturer to prevent this cheating from happening. Insights are generated.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0377-2217(09)00760-7
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    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 204 (2010)
    Issue (Month): 2 (July)
    Pages: 255-262

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    Handle: RePEc:eee:ejores:v:204:y:2010:i:2:p:255-262
    Contact details of provider: Web page: http://www.elsevier.com/locate/eor

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    1. Terry A. Taylor, 2002. "Supply Chain Coordination Under Channel Rebates with Sales Effort Effects," Management Science, INFORMS, vol. 48(8), pages 992-1007, August.
    2. Choi, Tsan-Ming & Chow, Pui-Sze, 2008. "Mean-variance analysis of Quick Response Program," International Journal of Production Economics, Elsevier, vol. 114(2), pages 456-475, August.
    3. Halati, Abolhassan & He, Yuanjie, 2010. "Analysis of supply chains with quantity based fixed incentives," European Journal of Operational Research, Elsevier, vol. 202(1), pages 214-222, April.
    4. Lau, Hon-Shiang & Lau, Amy Hing-Ling, 1999. "Manufacturer's pricing strategy and return policy for a single-period commodity," European Journal of Operational Research, Elsevier, vol. 116(2), pages 291-304, July.
    5. Martin A. Lariviere & Evan L. Porteus, 2001. "Selling to the Newsvendor: An Analysis of Price-Only Contracts," Manufacturing & Service Operations Management, INFORMS, vol. 3(4), pages 293-305, May.
    6. Barry Alan Pasternack, 1985. "Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, vol. 4(2), pages 166-176.
    7. Lian, Zhaotong & Deshmukh, Abhijit, 2009. "Analysis of supply contracts with quantity flexibility," European Journal of Operational Research, Elsevier, vol. 196(2), pages 526-533, July.
    8. Jan A. Van Mieghem, 2003. "Commissioned Paper: Capacity Management, Investment, and Hedging: Review and Recent Developments," Manufacturing & Service Operations Management, INFORMS, vol. 5(4), pages 269-302, July.
    9. Linh, Cao To & Hong, Yushin, 2009. "Channel coordination through a revenue sharing contract in a two-period newsboy problem," European Journal of Operational Research, Elsevier, vol. 198(3), pages 822-829, November.
    10. Chung, Chia-Shin & Flynn, James & Zhu, Jishan, 2009. "The newsvendor problem with an in-season price adjustment," European Journal of Operational Research, Elsevier, vol. 198(1), pages 148-156, October.
    11. Choi, Tsan-Ming & Li, Duan & Yan, Houmin, 2008. "Mean-variance analysis of a single supplier and retailer supply chain under a returns policy," European Journal of Operational Research, Elsevier, vol. 184(1), pages 356-376, January.
    12. Wang, Yulan & Zipkin, Paul, 2009. "Agents' incentives under buy-back contracts in a two-stage supply chain," International Journal of Production Economics, Elsevier, vol. 120(2), pages 525-539, August.
    13. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
    14. Chen, Haoya & Chen, Youhua (Frank) & Chiu, Chun-Hung & Choi, Tsan-Ming & Sethi, Suresh, 2010. "Coordination mechanism for the supply chain with leadtime consideration and price-dependent demand," European Journal of Operational Research, Elsevier, vol. 203(1), pages 70-80, May.
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