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Joint Pricing-Production Decisions in Supply Chains of Complementary Products with Uncertain Demand

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  • Yunzeng Wang

    (School of Management, University of Texas at Dallas, Richardson, Texas 75083)

Abstract

Consider n manufacturers, each producing a different product and selling it to a market, either directly or through a common retailer. The n products are perfectly complementary in the sense that they are always sold and consumed jointly or in sets of one unit of each. Demand for the products during a selling season is both price sensitive and uncertain. Each of the n manufacturers faces the problem of choosing a production quantity and a selling price for his product. Two settings are considered, regarding the decision sequence of the n manufacturers: They are either simultaneous or sequential. The retailer, when present, employs a consignment-sales contract with revenue sharing to bind her relationship with the manufacturers and to extract profit for herself. Using a multiplicative demand model in this paper, we fully characterize individual firms’ decisions in equilibria, under each of the two game settings, and derive closed-form performance measures, both for the channel and for individual channel members. These closed-form solutions allow us to explore the effects of channel structure and parameters on firms’ decisions and performance that lead to conclusions of managerial interest.

Suggested Citation

  • Yunzeng Wang, 2006. "Joint Pricing-Production Decisions in Supply Chains of Complementary Products with Uncertain Demand," Operations Research, INFORMS, vol. 54(6), pages 1110-1127, December.
    • Handle: RePEc:inm:oropre:v:54:y:2006:i:6:p:1110-1127
    DOI: 10.1287/opre.1060.0326
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    References listed on IDEAS

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