Supply contracts in manufacturer-retailer interactions with manufacturer-quality and retailer effort-induced demand

Haresh Gurnani, Murat Erkoc

Research output: Contribution to journalArticle

70 Citations (Scopus)

Abstract

We consider a decentralized distribution channel where demand depends on the manufacturer-chosen quality of the product and the selling effort chosen by the retailer. The cost of selling effort is private information for the retailer. We consider three different types of supply contracts in this article: price-only contract where the manufacturer sets a wholesale price; fixed-fee contract where manufacturer sells at marginal cost but charges a fixed (transfer) fee; and, general franchise contract where manufacturer sets a wholesale price and charges a fixed fee as well. The fixed-fee and general franchise contracts are referred to as two-part tariff contracts. For each contract type, we study different contract forms including individual, menu, and pooling contracts. In the analysis of the different types and forms of contracts, we show that the price only contract is dominated by the general franchise menu contract. However, the manufacturer may prefer to offer the fixed-fee individual contract as compared to the general franchise contract when the retailer's reservation utility and degree of information asymmetry in costs are high.

Original languageEnglish
Pages (from-to)200-217
Number of pages18
JournalNaval Research Logistics
Volume55
Issue number3
DOIs
StatePublished - Apr 1 2008

Fingerprint

Interaction
Demand
Retailers
Supply contracts
Sales
Costs
Charge
Information Asymmetry
Private Information
Pooling
Reservation
Decentralized
Franchise
Fixed fee

Keywords

  • Information asymmetry
  • Retailer effort
  • Supply contracts

ASJC Scopus subject areas

  • Management Science and Operations Research

Cite this

Supply contracts in manufacturer-retailer interactions with manufacturer-quality and retailer effort-induced demand. / Gurnani, Haresh; Erkoc, Murat.

In: Naval Research Logistics, Vol. 55, No. 3, 01.04.2008, p. 200-217.

Research output: Contribution to journalArticle

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