Pricing in Business-to-Business Contracts: Sharing Risk, Profit and Information
The Oxford Handbook of Pricing Management, O. Ozer, R. Phillips, eds., Oxford University Press, 2012
51 Pages Posted: 23 Nov 2011 Last revised: 14 Oct 2017
Date Written: November 23, 2011
In this chapter, we illustrate how pricing terms in business-to-business (B2B) contracts can be used to align incentives, and to share risks, profits and information in supply chains that face uncertain demand. In the context of inventory risk, we discuss how a manufacturer can influence its retailer’s product availability and pricing decisions through B2B contracts. In the context of capacity risk, we illustrate how contracts enable a manufacturer to influence a supplier’s component capacity choice and to elicit strategic information from the supplier. In addition to developing relevant mathematical models, we also discuss contract implementation issues and managerial implications.
Keywords: B2B contracting, pricing contracts, supply chain management, inventory risk, capacity risk, coordination, news vendor model
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