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Coordinating a two-stage supply chain via a markdown money and advertising subsidy contract

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  • Tiaojun Xiao
  • Xinxin Yan

Abstract

This paper explores coordination of a supply chain consisting of one manufacturer and one retailer and studies Pareto condition of coordination mechanism under additive and multiplicative demand uncertainties where the retailer jointly determines order quantity and advertising level. We develop a markdown-money and advertising-subsidy mechanism to coordinate the supply chain in each case of uncertainty. Under a uniform distribution, a higher chargeback rate is along with a higher fraction of advertising expenditure shared by the manufacturer and the coordination mechanism is robust to error form. In the coordinated setting, whether salvage value influences the advertising level depends on the error form. Higher advertising elasticity or scaling constant implies a lower efficiency in each error case due to a higher mean demand, while the effect of the unit salvage value on the efficiency depends on the error form.

Suggested Citation

  • Tiaojun Xiao & Xinxin Yan, 2011. "Coordinating a two-stage supply chain via a markdown money and advertising subsidy contract," International Journal of Information and Decision Sciences, Inderscience Enterprises Ltd, vol. 3(2), pages 107-127.
    • Handle: RePEc:ids:ijidsc:v:3:y:2011:i:2:p:107-127
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    Cited by:

    1. Hu, Shu & Dai, Ying & Ma, Zu-Jun & Ye, Yu-Sen, 2016. "Designing contracts for a reverse supply chain with strategic recycling behavior of consumers," International Journal of Production Economics, Elsevier, vol. 180(C), pages 16-24.

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