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Incentives for retailers competing on price and inventory Shao, Jing

Abstract

This dissertation studies three topics in supply chain management. Consider a decentralized supply chain, where a manufacturer distributes products through competing retailers. Incentive conflicts among players often occur in such supply chains since the players have different objectives. This research seeks to help the manufacturer understand downstream retailers' incentives and provide managerial guidelines such as coordinating mechanisms and optimal strategies under existing contractual agreements. The first essay considers a manufacturer who distributes a product line (consisting of different product variants) through competing retailers. Due to the substitution between different product variants, as well as between different retailers, the incentive problems associated with distributing a product line are more complicated than that of distributing a single product. We characterize retailers' incentive distortions, and construct contracts that achieve channel coordination. Using numerical simulations, we study how the retailers' incentives and contracts are affected by underlying model parameters. The second essay investigates firms' incentives for transshipment in a decentralized supply chain. Transshipment price and the control of transshipment parameters are key factors that affect the manufacturer's and retailers' incentives for transshipment. We identify conditions under which the manufacturer and retailers are better off and worse off under transshipment. We also compare the decentralized retailer supply chain with one where the retailers are under joint ownership (a "chain store"). We obtain two surprising results. First, the manufacturer may prefer dealing with the chain store rather than with decentralized retailers. Second, chain store retailers may earn lower profits than decentralized retailers. The third essay examines the impact of a gray market on the firms in a decentralized supply chain. Under certain conditions, a gray market's positive effect, i.e., the demand generating effect, dominates the negative effect, i.e., the demand loss in authorized channels, and increases the manufacturer's profit. However, the manufacturer also can be hurt by a gray market. In some cases, the manufacturer can use the linear wholesale price to deter retailers from transshipping to a gray market. However, the deterrence may not always be successful, and the manufacturer needs to employ other approaches such as penalty terms to terminate a gray market.

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Attribution-NonCommercial-NoDerivatives 4.0 International

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