Two-period pricing and ordering policy for the dominant retailer in a two-echelon supply chain with demand uncertainty

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

92 Scopus Citations
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Author(s)

  • Kewen Pan
  • K. K. Lai
  • L. Liang
  • Stephen C.H. Leung

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)919-929
Journal / PublicationOmega
Volume37
Issue number4
Publication statusPublished - Aug 2009

Abstract

Retailing channels are increasingly being dominated by 'power' retailers who are in a position to dictate prices and ordering schedules to manufacturers and suppliers. A dominant retailer, such as Wal-Mart, has the 'power' to decide retail prices of products because there are so many manufacturers who are keen to sell their products through or to such a large and powerful retailer. Several products, such as electronic products, can be sold in the market for some periods during their lifecycles before they retreat, except when they are not popular with consumers after been introduced. Therefore, in case of such products, the retailer should not just consider a single-period pricing and ordering policy. It should make dynamic pricing and ordering decisions based on market demand forecast, in order to obtain maximum cumulative profit from the product during its lifecycle. In this study, we consider this scenario and construct a two-period model to discuss pricing and ordering problems for a dominant retailer with demand uncertainty in a declining price environment. We show that the maximum expected profit function is continuous concave, so the optimal solution to pricing and ordering policy exists and it is the one and only. We also analyze sensitivity of retailer's expected profit to the effects of parameters of price-discount sharing scheme and market demand. © 2008 Elsevier Ltd. All rights reserved.

Research Area(s)

  • Demand uncertainty, Dominant retailer, Optimization

Citation Format(s)

Two-period pricing and ordering policy for the dominant retailer in a two-echelon supply chain with demand uncertainty. / Pan, Kewen; Lai, K. K.; Liang, L.; Leung, Stephen C.H.

In: Omega, Vol. 37, No. 4, 08.2009, p. 919-929.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review