We model the effect of contract parameters such as price rebates and after-sales warranty costs on the choice of quality by a supplier, the inspection policy of a producer, and the resulting end product quality. Both noncooperative and cooperative settings are explored. The paper's contribution is to highlight the importance of strategic and contractual issues in quality management.quality control, inspection, game theory
Option pricing is a common and important practice in the financial community, and has become a fundamental theoretical construct in financial economics. The theory is quite rich and has potential uses in many other problem domains. This paper develops a variant of the theory as applied to inventory planning. In particular, we consider a risk management approach that uses negotiated option contracts for hedging against price and quantity uncertainty in inventory procurement. We derive conditions for the inclusion of options in inventory control as a function both of managerial attitudes toward risk and of the correlation between price and demand.
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