Selling a Product Line Through a Retailer When Demand Is Stochastic: Analysis of Price-Only Contracts

Dong, Lingxiu; Guo, Xiaomeng; Turcic, Danko

doi:10.2139/ssrn.2799749

Cited by 7 publications

(11 citation statements)

References 24 publications

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“…In a two‐product setting with demand uncertainty, Dong et al. () examine the impact of push and pull contracts on the manufacturer’s assortment choice, that is, whether to offer one or two products.…”

Section: Literature Reviewmentioning

confidence: 99%

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Selling Co‐Products through a Distributor: The Impact on Product Line Design

Chen

Tomlin

et al. 2019

Production and Operations Management

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A vertical co-product technology simultaneously produces multiple outputs that differ along a rankable quality metric.Co-product manufacturers often sell products through a distributor. We examine a setting in which a manufacturer sells vertically differentiated co-products through a self-interested distributor to quality-sensitive end customers. The manufacturer determines its production, product line design, and wholesale prices. The distributor determines its purchase quantities and retail prices. In traditional product-line design, products can be produced independently of each other and higher-quality products have higher production costs. This literature established that the length of the product line (i.e., difference between highest and lowest qualities) is greater in an indirect channel than in a direct channel. By contrast, co-products cannot be produced independently of each other. Among other findings, we establish that this interdependency causes the opposite channel effect: for co-products, the length of the product line is smaller in an indirect channel than in a direct channel. Additionally, we show that there exists a theoretical contract, combining revenue sharing and reverse slotting fees, that eliminates the indirect channel distortions in both product line design and output quantities.

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Section: Literature Reviewmentioning

confidence: 99%

“…This terminology varies somewhat across product‐line papers, with some, e.g., Dong et al. (), using length to refer to the number of products (size in our terminology).…”

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confidence: 99%

Selling Co‐Products through a Distributor: The Impact on Product Line Design

Chen

Tomlin

et al. 2019

Production and Operations Management

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“…Cachon (2004) first classifies the wholesale price contract into two categories through allocation of inventory responsibility in the presence of demand uncertainty, namely, a push contract where a supplier delegates the inventory responsibility to a manufacturer, and a pull contract where a manufacturer facilitates a supplier to take the inventory risk. This classification of the wholesale price contract has been followed by Dong and Zhu (2007), Granot and Yin (2008), Yang, Cai, and Chen (2018), and Dong, Guo, and Turcic (2019). As indicated by Dong et al (2019), push and pull contracts differ in inventory ownership.…”

Section: Introductionmentioning

confidence: 99%

“…This classification of the wholesale price contract has been followed by Dong and Zhu (2007), Granot and Yin (2008), Yang, Cai, and Chen (2018), and Dong, Guo, and Turcic (2019). As indicated by Dong et al (2019), push and pull contracts differ in inventory ownership. Feng, Li, and Sethi (2018) extend these two contracts in an assembly system with supply uncertainty (i.e., random yields).…”

Section: Introductionmentioning

confidence: 99%

Guarding against Disruption Risk by Contracting under Information Asymmetry

Liu

Bian

et al. 2020

Decision Sciences

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This study considers a decentralized supply chain in which a downstream manufacturer purchases a component from an upstream supplier privileged with private information on supply disruption risk. The supplier's initial reliability, asymmetric to the manufacturer, is either low or high. To guard against disruption risk by enhancing supply reliability, the manufacturer employs two representative contracts, namely, the wholesale price contract and the screening menu contract. We first examine the push and pull regimes under the wholesale price contract, and find that the manufacturer prefers the pull regime. Under the screening menu contract, we also consider two regimes: contracting the high‐type and low‐type supplier, and contracting only the high‐type supplier. From the perspective of the manufacturer, the regime that allows contracting both types of the supplier dominates the regime of contracting only the high‐type supplier under certain conditions. Comparing the wholesale price and screening menu contracts, we derive several interesting results. First, under specific conditions, the wholesale price contract is dominant for the manufacturer when the reliability enhancement cost or initial supply reliability heterogeneity is relatively high; otherwise, the screening menu contract is more favorable to the manufacturer. Second, in the pull regime, more information transparency may be detrimental to the manufacturer when the supplier's initial reliability is low, whereas the high‐type supplier can surprisingly yield a high profit under information asymmetry. Third, the low‐type supplier's preference on information transparency hinges on the reliability enhancement cost in the push regime.

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“…As demonstrated by Liu and Cui (), product line design is a very important decision because it may influence manufacturers' profits in decentralized channels. There is a rich school of literature on product line design that considers channel structures (e.g., Cai & Chen, ; Villas‐Boas, ), production technology (Chen, Tomlin, & Wang, ; Netessine & Taylor, ), demand management (Dong, Guo, & Turcic, ; Jerath, Kim, & Swinney, ) and risk attitude (Xiao & Xu, ). However, to the best of our knowledge, none of these studies discuss the interaction between revenue sharing schemes and product line design, although revenue sharing contracts are commonly adopted to coordinate supply chains.…”

Section: Introductionmentioning

confidence: 99%

Supply chain coordination with product line design and a revenue sharing scheme

Hsiao

Chen

Xiong

2019

Naval Research Logistics

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Many manufacturers sell their products through retailers and share the revenue with those retailers. Given this phenomenon, we build a stylized model to investigate the role of revenue sharing schemes in supply chain coordination and product variety decisions. In our model, a monopolistic manufacturer serves two segments of consumers, which are distinguished by their willingness to pay for quality. In the scenario with exogenous revenue sharing ratios, when the potential gain from serving the low segment is substantial (e.g., the low-segment consumers' willingness to pay is high enough or the low segment takes a large enough proportion of the market), the retailer is better off abandoning the revenue sharing scheme. Moreover, when the potential gain from serving the low (high) segment is substantial enough, the manufacturer finds it profitable to offer a single product. Furthermore, when revenue sharing ratios are endogenous, we divide our analysis into two cases, depending on the methods of cooperation. When revenue sharing ratios are negotiated at the very beginning, the decentralized supply chain causes further distortion. This suggests that the central premise of revenue sharing-the coordination of supply chains-may be undermined if supply chain parties meticulously bargain over it. KEYWORDSgame theory, product line design, revenue sharing, supply chain coordination 1 Naval Res Logistics 2019;66:213-229 wileyonlinelibrary.com/journal/nav

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Selling a Product Line Through a Retailer When Demand Is Stochastic: Analysis of Price-Only Contracts

Cited by 7 publications

References 24 publications

Selling Co‐Products through a Distributor: The Impact on Product Line Design

Selling Co‐Products through a Distributor: The Impact on Product Line Design

Guarding against Disruption Risk by Contracting under Information Asymmetry

Supply chain coordination with product line design and a revenue sharing scheme

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