Structural Properties of Buyback Contracts for Price-Setting Newsvendors

Manufacturing & Service Operations Management, Forthcoming

33 Pages Posted: 9 Jan 2007

See all articles by Yuyue Song

Yuyue Song

Memorial University of Newfoundland

Saibal Ray

McGill University - Desautels Faculty of Management

Shanling li

McGill University

Abstract

This paper studies a buyback contract in the Stackelberg framework of a manufacturer (leader) selling to a price-setting, newsvendor retailer (follower). Using an analytical model that focuses on a multiplicative demand form, we generalize previous results and produce new structural insights. A novel transformation technique first enables us to establish the unimodality of the profit functions for both channel partners, under relatively mild assumptions. Further analysis identifies the necessary and su±cient condition under which the optimal contract for the manufacturer (wholesale and buyback prices) is distribution-free, i.e., independent of the uncertainty in customer demand. A specific instance of the above condition is also necessary and su±cient for a no-buyback contract to be optimal from the manufacturer's perspective. We then prove that the optimal performance of the decentralized channel for distribution-free buyback contracts depends only on the curvature of the deterministic demand part. In addition, some of the optimal decisions and relevant profit ratios for buyback contracts in our setting are shown to be identical to those for their deterministic price-only counterparts.

Keywords: Price-setting Newsvendor, Buyback Contract, Supply Chain Performance, Demand Curvature

Suggested Citation

Song, Yuyue and Ray, Saibal and li, Shanling, Structural Properties of Buyback Contracts for Price-Setting Newsvendors. Manufacturing & Service Operations Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=955463

Yuyue Song

Memorial University of Newfoundland ( email )

St. John's NL
St. John's, NL A1B3X5
Canada

Saibal Ray (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. (W)
Montreal, Quebec H3A 2M1
Canada

HOME PAGE: http://people.mcgill.ca/saibal.ray/

Shanling Li

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
203
Abstract Views
1,107
rank
160,897
PlumX Metrics