No abstract

No abstract

We compare revenue sharing with different profit-sharing rules and constant transfer prices in a buyer-seller setting, in which the incompleteness of contracts causes decentralization costs. Our focus is on a situation where a manufacturing department or a supplier of an intermediate product can invest in a quality improvement of the final product and thereby increase customer demand. We analyze the willingness of the supplier to invest under a revenue-sharing rule, three profit-sharing rules and a transfer-pricing scheme. Our analysis shows that the performance of sharing rules is likely to decrease when the sharing basis consists of fewer cost components. Remarkably, this is not true for the revenue-sharing rule. To the contrary, this less prominent scheme can be shown to maximize total profit under a variety of cost combinations.

The subject of this article is the simultaneous choice of product price and manufacturing capacity if demand is stochastic and service-level sensitive. In this setting, capacity as well as price have an impact on demand because several aspects of service level depend on capacity. For example, delivery time will be reduced if capacity is increased given a constant demand rate. We illustrate the relationship between service level, capacity, and demand reaction by a stylized application problem from the after-sales services industry. The reaction of customers to variations in service level and price is represented by a kinked price-demand-rate function. We first derive the optimal price-capacity combination for the resulting decision problem under full information. Subsequently, we focus on a decision maker (DM) who lacks complete knowledge of the demand function. Hence the DM is unable to anticipate the service level and consequently cannot identify the optimal solution. However, the DM will acquire additional information during the sales process and use it in subsequent revisions of the price-capacity decision. Thus, this decision making is adaptive and based on experience. In contrast to the literature, which assumes certain repetitive procedures somewhat ad hoc, we develop an adaptive decision process based on case-based decision theory (CBDT) for the price-capacity problem. Finally, we show that a CBDT DM in our setting eventually finds the optimal solution, if the DM sets the price based on absorption costs and adequately adjusts the capacity with respect to the observed demand.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. In particular, we find that the firm benefits from a higher degree of decentralization so that total profit increases in the number of parameters being subject to negotiations. Terms of use: Documents in EconStor may