IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article

Customer-Driven vs. Retailer-Driven Search: Channel Performance and Implications

  • Li Jiang

    ()

    (Department of Logistics and Maritime Studies, Faculty of Business, Hong Kong Polytechnic University, Hong Kong SAR, China)

  • Ravi Anupindi

    ()

    (Stephen M. Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

Registered author(s):

    A common phenomenon that occurs in any decentralized multilocation system is stock imbalance, whereby some locations have unsatisfied demands while others are overstocked. The system can be rebalanced by using a search process that is driven by either the customers or the retailers. In a customer-driven search (CDS), the customer with unmet demand may search for the product at another location and, if it is available, complete the purchase. In a retailer-driven search (RDS), the retailer with unsatisfied demand searches for product and schedules transshipment to fulfill the unmet demand at his location. Of course, the revenues generated through search in RDS need to be shared between the parties according to a transfer pricing scheme. In a setting of one manufacturer and two retailers with price-dependent and random demand, we explore the impact of the search method and the transfer price scheme used on the preferences of the manufacturer, the retailers, and the customers. With endogenous retail prices, we find that both the manufacturer and the retailers prefer RDS over CDS when they can design the transfer pricing scheme in RDS. Interestingly, neither party prefers the fixed transfer pricing scheme commonly assumed in the literature. Instead, transfer price that is proportional to the price of the retailer with either excess stock or excess demand is preferred. However, although both parties favor an RDS system when they can design the transfer pricing scheme in RDS, they may prefer RDS or CDS when the other party designs the RDS. Thus, the interests of the manufacturer and the retailers are rarely aligned. Customers benefit from a lower price in an RDS but at the expense of lower availability (as measured by the level of safety stock).

    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://dx.doi.org/10.1287/msom.1090.0258
    Download Restriction: no

    Article provided by INFORMS in its journal Manufacturing & Service Operations Management.

    Volume (Year): 12 (2010)
    Issue (Month): 1 (January)
    Pages: 102-119

    as
    in new window

    Handle: RePEc:inm:ormsom:v:12:y:2010:i:1:p:102-119
    Contact details of provider: Postal:
    7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA

    Phone: +1-443-757-3500
    Fax: 443-757-3515
    Web page: http://www.informs.org/
    Email:


    More information through EDIRC

    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. Dana, James D, Jr, 2001. "Competition in Price and Availability When Availability is Unobservable," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 497-513, Autumn.
    2. 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.
    3. Lingxiu Dong & Nils Rudi, 2004. "Who Benefits from Transshipment? Exogenous vs. Endogenous Wholesale Prices," Management Science, INFORMS, vol. 50(5), pages 645-657, May.
    4. Hui Zhao & Vinayak Deshpande & Jennifer K. Ryan, 2005. "Inventory Sharing and Rationing in Decentralized Dealer Networks," Management Science, INFORMS, vol. 51(4), pages 531-547, April.
    5. Jun Zhang, 2005. "Transshipment and Its Impact on Supply Chain Members' Performance," Management Science, INFORMS, vol. 51(10), pages 1534-1539, October.
    6. Nils Rudi & Sandeep Kapur & David F. Pyke, 2001. "A Two-Location Inventory Model with Transshipment and Local Decision Making," Management Science, INFORMS, vol. 47(12), pages 1668-1680, December.
    7. Xinxin Hu & Izak Duenyas & Roman Kapuscinski, 2007. "Existence of Coordinating Transshipment Prices in a Two-Location Inventory Model," Management Science, INFORMS, vol. 53(8), pages 1289-1302, August.
    8. GĂ©rard P. Cachon & Christian Terwiesch & Yi Xu, 2008. "On the Effects of Consumer Search and Firm Entry in a Multiproduct Competitive Market," Marketing Science, INFORMS, vol. 27(3), pages 461-473, 05-06.
    9. Timothy W. McGuire & Richard Staelin, 1983. "An Industry Equilibrium Analysis of Downstream Vertical Integration," Marketing Science, INFORMS, vol. 2(2), pages 161-191.
    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:inm:ormsom:v:12:y:2010:i:1:p:102-119. 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: (Mirko Janc)

    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.