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Agents' incentives under buy-back contracts in a two-stage supply chain

Publication ,  Journal Article
Wang, Y; Zipkin, P
Published in: International Journal of Production Economics
August 1, 2009

This paper investigates how the behavior of individual decision makers can affect the performance of a supply chain. We study a two-stage supplier-retailer system, using a buy-back contract. Each firm's actions are executed by an agent. The retailer's purchasing agent and the supplier's sales agent are compensated based on certain performance measures, and they act accordingly. We study the impacts of their behavior in both the supplier-as-leader and retailer-as-leader settings. We find that, unless their incentives are carefully constructed, the agents can strongly distort the system's behavior. Specifically, "channel stuffing" (packing the distribution channel with excess inventory) can occur in both settings. Only when the agents are compensated based on net profit do they act in accord with their firms' objectives. These results may help explain some recent scandals. © 2009 Elsevier B.V. All rights reserved.

Duke Scholars

Published In

International Journal of Production Economics

DOI

ISSN

0925-5273

Publication Date

August 1, 2009

Volume

120

Issue

2

Start / End Page

525 / 539

Related Subject Headings

  • Operations Research
 

Citation

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Chicago
ICMJE
MLA
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Wang, Y., & Zipkin, P. (2009). Agents' incentives under buy-back contracts in a two-stage supply chain. International Journal of Production Economics, 120(2), 525–539. https://doi.org/10.1016/j.ijpe.2009.04.008
Wang, Y., and P. Zipkin. “Agents' incentives under buy-back contracts in a two-stage supply chain.” International Journal of Production Economics 120, no. 2 (August 1, 2009): 525–39. https://doi.org/10.1016/j.ijpe.2009.04.008.
Wang Y, Zipkin P. Agents' incentives under buy-back contracts in a two-stage supply chain. International Journal of Production Economics. 2009 Aug 1;120(2):525–39.
Wang, Y., and P. Zipkin. “Agents' incentives under buy-back contracts in a two-stage supply chain.” International Journal of Production Economics, vol. 120, no. 2, Aug. 2009, pp. 525–39. Scopus, doi:10.1016/j.ijpe.2009.04.008.
Wang Y, Zipkin P. Agents' incentives under buy-back contracts in a two-stage supply chain. International Journal of Production Economics. 2009 Aug 1;120(2):525–539.
Journal cover image

Published In

International Journal of Production Economics

DOI

ISSN

0925-5273

Publication Date

August 1, 2009

Volume

120

Issue

2

Start / End Page

525 / 539

Related Subject Headings

  • Operations Research