IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Optimal production and selling policies with fixed-price contracts and contingent-price offers

Listed author(s):
  • Ku, Cheng-Yuan
  • Chang, Yi-Wen
Registered author(s):

    This paper investigates optimal production and selling decisions for a single supplier with two types of customers. Specifically, risk-averse buyers would rather pay higher fixed prices with guaranteed supply contracts whereas risk-prone buyers prefer to secure remaining stocks and pay lower contingent prices. This study formulized this problem with a dynamic programming model and analyzed it further using successive approximations. Theoretical results indicate that no controls are needed for fixed-price orders. However, thresholds exist for manufacturing and contingent-price ordering policies. These two types of threshold planes increased with the addition of waiting customers. Furthermore, a sensitivity analysis of seasonal factors revealed that the optimal threshold plane shifts upward during high demand periods.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.sciencedirect.com/science/article/pii/S0925527312000217
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 137 (2012)
    Issue (Month): 1 ()
    Pages: 94-101

    as
    in new window

    Handle: RePEc:eee:proeco:v:137:y:2012:i:1:p:94-101
    DOI: 10.1016/j.ijpe.2012.01.019
    Contact details of provider: Web page: http://www.elsevier.com/locate/ijpe

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as
    in new window


    1. Clerides, Sofronis K., 2002. "Book value: intertemporal pricing and quality discrimination in the US market for books," International Journal of Industrial Organization, Elsevier, vol. 20(10), pages 1385-1408, December.
    2. Bodily, S. E. & Weatherford, L. R., 1995. "Perishable-asset revenue management: Generic and multiple-price yield management with diversion," Omega, Elsevier, vol. 23(2), pages 173-185, April.
    3. James Langenfeld & Wenqing Li & George Schink, 2003. "Economic Literature on Price Discrimination and its Application to the Uniform Pricing of Gasoline," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(2), pages 179-193.
    4. Lee, Chang Hwan & Rhee, Byong-Duk, 2007. "Channel coordination using product returns for a supply chain with stochastic salvage capacity," European Journal of Operational Research, Elsevier, vol. 177(1), pages 214-238, February.
    5. Lutz, Nancy A. & Padmanabhan, V., 1998. "Warranties, extended warranties, and product quality," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 463-493, July.
    6. Jin, Mingzhou & David Wu, S., 2007. "Capacity reservation contracts for high-tech industry," European Journal of Operational Research, Elsevier, vol. 176(3), pages 1659-1677, February.
    7. Varian, Hal R., 1989. "Price discrimination," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 10, pages 597-654 Elsevier.
    8. Chakravarthi Narasimhan, 1984. "A Price Discrimination Theory of Coupons," Marketing Science, INFORMS, vol. 3(2), pages 128-147.
    9. Sallstrom, Susanna, 2001. "Fashion and sales," International Journal of Industrial Organization, Elsevier, vol. 19(9), pages 1363-1385, November.
    10. Tang, Christopher S., 2006. "Perspectives in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 103(2), pages 451-488, October.
    11. Goh, Mark & Lim, Joseph Y.S. & Meng, Fanwen, 2007. "A stochastic model for risk management in global supply chain networks," European Journal of Operational Research, Elsevier, vol. 182(1), pages 164-173, October.
    12. Tang, Ou & Nurmaya Musa, S., 2011. "Identifying risk issues and research advancements in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 133(1), pages 25-34, September.
    13. Ganesh Iyer & P.B. Seetharaman, 2003. "To Price Discriminate or Not: Product Choice and the Selection Bias Problem," Quantitative Marketing and Economics (QME), Springer, vol. 1(2), pages 155-178, June.
    14. Giri, B.C., 2011. "Managing inventory with two suppliers under yield uncertainty and risk aversion," International Journal of Production Economics, Elsevier, vol. 133(1), pages 80-85, September.
    15. K. Sridhar Moorthy, 1984. "Market Segmentation, Self-Selection, and Product Line Design," Marketing Science, INFORMS, vol. 3(4), pages 288-307.
    16. Weatherford, LR & Pfeifer, PE, 1994. "The economic value of using advance booking of orders," Omega, Elsevier, vol. 22(1), pages 105-111, January.
    17. Mitra, Subrata, 2007. "Revenue management for remanufactured products," Omega, Elsevier, vol. 35(5), pages 553-562, October.
    18. Jinhong Xie & Steven M. Shugan, 2001. "Electronic Tickets, Smart Cards, and Online Prepayments: When and How to Advance Sell," Marketing Science, INFORMS, vol. 20(3), pages 219-243, June.
    19. Eyal Biyalogorsky & Eitan Gerstner, 2004. "Contingent Pricing to Reduce Price Risks," Marketing Science, INFORMS, vol. 23(1), pages 146-155, March.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:137:y:2012:i:1:p:94-101. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.