Two-Wholesale-Price Contract In Supply Chain With Retailer’s Responsive Pricing

When to order from a supplier is an important issue for retailer in supply chain. Order in different time points will influence the inventory risk allocation. A two-wholesale-price contract contains two different wholesale prices correspond to different ordering time points:one for per-ordering which the retailer sends the order before the pro-ducing process beginning and another for delay-ordering which the retailer sends the order after the demand fluctuation. The wholesale prices in the contract controls the ordering quantity and producing quantity in supply chain. It can be separated into three situations:push, pull and partial-advance-booking contract. A push contract implies the retailer only make pre-order whereas a pull contract implies the retailer only makes delay-order. Partial-advance-booking contract is a combination of these two contracts.In this paper, the authors study how retailer’s responsive pricing impact on the sup-ply chain contract selection between push, pull and partial-advance-booking contracts in supply chain. Retailer’s responsive pricing refers to the retailing price is determined after demand fluctuation is realized, and the retailing price will influence the final de-mand. The authors model the problem as a two-stage newsvendor problem which the object is maximizing the two firms own profit. The optimal ordering quantity deci-sion and producing quantity decision confirm which contract the supply chain operates in. The authors also find the conditions under which the supply chain will operate in push (pull pr partial-advance-booking) contract. Interestingly, they find that retailer’s pricing power may harm the supplier’s producing quantity when the wholesale price after demand fluctuation realization is high, so the supplier even reduces his producing quantity when the wholesale price increases.By a numerical illustration, the authors analyze the impact of the price coefficient of demand and the uncertainty of the demand. They figure out that the price coefficient of demand which represents the capacity of the retail’s pricing power is actually play a part in reducing the demand uncertainty. They also find surprisingly that the retailer is even prefer push contract when demand is more uncertain at a high delay-ordering wholesale price. Compare with the supply chain without retailer’s responsive pricing, the pre-ordering quantity from partial-advance-booking contract into pull contract is no longer consecutive. This property attributes to the pricing power makes the retail always want to sell something even he did not pre-order anything. From the illustration of supply chain efficient, the authors find that the supply chain can cooperate only when the pre-ordering wholesale price reach the producing cost. Furthermore, the retailer’s responsive pricing can increase the supply chain’s efficient best when the two wholesale prices are both small and worst when the two wholesale prices are both large.