Supply chain management through price commitment policies

We examine the behavior of a manufacturer and a retailer in decentralized supply chains under price-dependent demand. We investigate the use of several price-commitment policies as coordination mechanisms. The first policy we examine is a retailer's fixed markup (RFM) policy where the retailer commits to a fixed price markup over wholesale price to determine her retail price. The second is a price protection policy where the manufacturer agrees to reimburse the retailer for decreases in the wholesale price.; In our first paper we examine the effect of RFM on individual agents' profits and supply chain performance under single period, stochastic demand. Our focus here is on exogenously determined markup values and linear additive demand forms. We prove the existence of optimal pricing and replenishment policies. We also find that RFM can result in significantly greater profit for the supply chain than the price-only contract and leads to Pareto-improving solutions. The second paper extends our analysis by examining the RFM policy under both multiplicative and linear additive demand forms. We obtain closed-form solutions for both RFM and price-only policies and analytically prove that Pareto-improving solutions are not possible under iso-price-elastic, multiplicative demand. We also consider the effect of pricing power in the supply chain by varying who determines the retail price markup. Our results reveal that the effect of retailer ex-ante markup commitment is heavily dependent on both the nature of the demand function and the relative pricing power of different players in the supply chain. The final paper in this dissertation investigates a multi-period, deterministic demand setting. We compare price commitments made by both the retailer and the supplier. RFM represents the retailer's price commitment and price protection is a form of manufacturer price commitment. We prove the existence of unique, optimal pricing and ordering solutions for all policies considered. We also demonstrate that the retailer may carry inventory under both price-only and RFM settings even though demand is deterministic and no economies of scale are considered. Price protection is shown to resolve the gaming that leads to inventory, but at the expense of channel performance.