Coordinating a two-echelon supply chain through different contracts under price and promotional effort-dependent demand

Abstract

Retail price and promotional effort are two important parameters on which demand of a commodity largely depends. This paper develops and analyzes a two-echelon supply chain where market demand depends on both retail price and sales effort. The centralized model is studied as the benchmark case, and the wholesale price-only contract is studied as the base case in which each entity tries to maximize its individual profit. Different contract mechanisms are implemented to outperform the base case in terms of both total chain’s as well as individual profits. Comparisons among the coordinating contracts are provided so that any entity may choose the better one from available contracts after the contract parameters are negotiated. The model is extensively examined through a numerical example.

Keywords

Price and effort-dependent demand / wholesale price-only contract / wholesale price discount / revenue sharing / profit sharing / two-part tariff

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