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Quantity Restrictions And The Reseller'S Response To A Temporary Price Reduction Or An Announced Price Increase

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  • PRAKASH L. ABAD

    (MG DeGroote School of Business, McMaster University, 1280 Main west, Hamilton, Ontario, Canada L8S 4M4, Canada)

Abstract

Manufacturers and suppliers offer temporary reductions (or permanent increases) in the price charged to the resellers for a variety of reasons. The trade promotion may be offered to the reseller at a single point in time or over a finite time-span. In addition, in reselling situations, the end demand tends to be sensitive to selling price. It is commonly found that under such trade promotion (or in stockpiling to an announced price increase), not all the quantity purchased by the reseller at discount may be passed on to the final consumer at a reduced selling price. In fact, previous studies have shown that it is optimal for the reseller to carry forward some of the quantity purchased at discount and sell it later at the regular price. It has been suggested in the literature that by placing a restriction on the reseller's purchase quantity, the supplier can restrict the reseller's forward buy quantity. In this paper, we evaluate this approach. In the rest of the paper, we present alternate schemes which are easy to administer and which insure that the supplier avoids the spike in demand that occurs in the unconstrained problem.

Suggested Citation

  • Prakash L. Abad, 2006. "Quantity Restrictions And The Reseller'S Response To A Temporary Price Reduction Or An Announced Price Increase," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 23(01), pages 1-23.
    • Handle: RePEc:wsi:apjorx:v:23:y:2006:i:01:n:s021759590600084x
    DOI: 10.1142/S021759590600084X
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    Cited by:

    1. Taleizadeh, Ata Allah & Zarei, Hamid Reza & Sarker, Bhaba R., 2017. "An optimal control of inventory under probablistic replenishment intervals and known price increase," European Journal of Operational Research, Elsevier, vol. 257(3), pages 777-791.
    2. Ramasesh, Ranga V., 2010. "Lot-sizing decisions under limited-time price incentives: A review," Omega, Elsevier, vol. 38(3-4), pages 118-135, June.
    3. Taleizadeh, Ata Allah & Pentico, David W., 2013. "An economic order quantity model with a known price increase and partial backordering," European Journal of Operational Research, Elsevier, vol. 228(3), pages 516-525.

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