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Buyback contracts to solve upstream opportunism

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  • Doganoglu, Toker
  • Inceoglu, Firat

Abstract

We provide another explanation for the prevalence of buyback provisions in wholesale contracts. As opposed to the existing literature which focuses on demand uncertainty, we show that buyback provisions may help an upstream supplier to alleviate the opportunism problem which arises due to strategic uncertainty. Within two different industry structures, first with a vertically integrated manufacturer and an independent retailer, then with an upstream-only manufacturer and two competing retailers, we show that a buyback contract may yield the industry profit maximizing outcome. Upstream marginal costs and retailer demand elasticity play an important role in determining the success of the buyback clause. A dual-channel supply chain is more effective in achieving coordination via buybacks.

Suggested Citation

  • Doganoglu, Toker & Inceoglu, Firat, 2020. "Buyback contracts to solve upstream opportunism," European Journal of Operational Research, Elsevier, vol. 287(3), pages 875-884.
    • Handle: RePEc:eee:ejores:v:287:y:2020:i:3:p:875-884
    DOI: 10.1016/j.ejor.2020.05.021
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    Cited by:

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    2. Jinjin Zhang & Xin Li & Yong-Hong Kuo & Yan Chen, 2021. "Coordinating Supply Chain Financing for E-commerce Companies Through a Loan Contract," SAGE Open, , vol. 11(4), pages 21582440211, December.
    3. Li, Dan & Chen, Jing & Chen, Bintong & Liao, Yi, 2022. "Manufacturer’s contract choice and retailer’s returns management strategy," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 165(C).
    4. Minghua Xiong & Xiaopo Zhuo, 2023. "Brand-Owners’ Exclusive Channel Strategies in Multitier Supply Chains: Effect of Contract Unobservability," Sustainability, MDPI, vol. 15(8), pages 1-23, April.
    5. Gaidi Tian & Chunfa Li, 2023. "How Can We Promote Smartphone Leasing via a Buyback Program?," Sustainability, MDPI, vol. 15(14), pages 1-29, July.
    6. Liu, Bingbing & Yu, Yugang & Guo, Xiaolong, 2021. "Simpler and better: Supply chain contracting in the presence of contract unobservability and upstream competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 154(C).

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