Two-period pricing and ordering policy for the dominant retailer in a two-echelon supply chain with demand uncertainty |
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Authors: | Kewen Pan KK Lai L Liang Stephen CH Leung |
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Institution: | 1. Department of Management Sciences, City University of Hong Kong, Hong Kong;2. Management School, University of Science and Technology of China, Hefei, China |
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Abstract: | Retailing channels are increasingly being dominated by ‘power’ retailers who are in a position to dictate prices and ordering schedules to manufacturers and suppliers. A dominant retailer, such as Wal-Mart, has the ‘power’ to decide retail prices of products because there are so many manufacturers who are keen to sell their products through or to such a large and powerful retailer. Several products, such as electronic products, can be sold in the market for some periods during their lifecycles before they retreat, except when they are not popular with consumers after been introduced. Therefore, in case of such products, the retailer should not just consider a single-period pricing and ordering policy. It should make dynamic pricing and ordering decisions based on market demand forecast, in order to obtain maximum cumulative profit from the product during its lifecycle. In this study, we consider this scenario and construct a two-period model to discuss pricing and ordering problems for a dominant retailer with demand uncertainty in a declining price environment. We show that the maximum expected profit function is continuous concave, so the optimal solution to pricing and ordering policy exists and it is the one and only. We also analyze sensitivity of retailer's expected profit to the effects of parameters of price-discount sharing scheme and market demand. |
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Keywords: | Dominant retailer Demand uncertainty Optimization |
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