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Coordination and incentives in a supplier-retailer rental information goods supply chain

  • Khouja, Moutaz
  • Rajagopalan, Hari K.
  • Sharer, Elizabeth
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    In rental information goods supply chain, such as movie DVDs and computers games, the retailer decides on the quantity of DVDs to purchase from the supplier, the rental fee, and the maximum rental duration. These decisions are directly affected by the price the supplier charges the retailers for the DVDs. In this paper we show that revenue sharing as compared to an independent strategy can result in lower rental fee, larger order quantities and increased profit for both the retailer and supplier. We also show that vertical integration (partnership) can result in higher profits across the supply chain compared to revenue sharing or an independent strategy. We also formulate a model to examine the use of incentives for early return of rented DVDs and show that they can increase profit by increasing circulations of DVDs. We also perform numerical sensitive analysis to examine the impact of rental lifecycle and shortage cost on rental fee, order quantity, and profits.

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    File URL: http://www.sciencedirect.com/science/article/B6VF8-4XFGJ9S-2/2/122465eb5be2079d4cc5340a117d6f06
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    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 123 (2010)
    Issue (Month): 2 (February)
    Pages: 279-289

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    Handle: RePEc:eee:proeco:v:123:y:2010:i:2:p:279-289
    Contact details of provider: Web page: http://www.elsevier.com/locate/ijpe

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    1. Yunzeng Wang & Li Jiang & Zuo-Jun Shen, 2004. "Channel Performance Under Consignment Contract with Revenue Sharing," Management Science, INFORMS, vol. 50(1), pages 34-47, January.
    2. GĂ©rard P. Cachon & Martin A. Lariviere, 2005. "Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations," Management Science, INFORMS, vol. 51(1), pages 30-44, January.
    3. Dana, James D, Jr & Spier, Kathryn E, 2001. "Revenue Sharing and Vertical Control in the Video Rental Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 49(3), pages 223-45, September.
    4. Julie Holland Mortimer, 2002. "The Effects of Revenue-Sharing Contracts on Welfare in Vertically-Separated Markets: Evidence from the Video Rental Industry," Harvard Institute of Economic Research Working Papers 1964, Harvard - Institute of Economic Research.
    5. Li, Sijie & Hua, Zhongsheng, 2008. "A note on channel performance under consignment contract with revenue sharing," European Journal of Operational Research, Elsevier, vol. 184(2), pages 793-796, January.
    6. Julie H. Mortimer, 2008. "Vertical Contracts in the Video Rental Industry -super-1," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 165-199.
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