Rebate, returns and price protection policies in channel coordination

We study channel coordination policies for products subject to midlife price declines during their short product life cycles. Using a two-period supply chain model consisting of one supplier and one retailer, we identify policies and/or conditions under which the supply chain can be coordinated and a win-win situation can be guaranteed. We also provide algorithms to determine the win-win policy parameters. We show that if there are two purchase opportunities, then under linear or decreasing (the more you buy, the lower price you pay) pricing strategies, there may not exist a win-win policy. Our analysis shows that several findings in the single-period models prevalent in the supply chain research literature to date do not extend to the two-period model with two purchase opportunities. For example, returns policies and revenue sharing contracts are no longer equivalent. Also, quantity discounts may never lead to a win-win situation. In fact, the supplier may need to charge more for large orders in order to achieve a win-win outcome. Finally, the analytical framework of this paper can be applied to situations in which the price is constant but production costs change over time.

Duke Scholars

Author Jing-Sheng Song Fuqua School of Business