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

Yunzeng Wang
Operations Research
Vol. 54, No. 6 (Nov. - Dec., 2006), pp. 1110-1127
Published by: INFORMS
Stable URL: http://www.jstor.org/stable/25147041
Page Count: 18
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Joint Pricing-Production Decisions in Supply Chains of Complementary Products with Uncertain Demand
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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.

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