Dollar Vs. Percentage Markup Pricing Schemes Under A Dominant Retailer

We investigate two very common pricing schemes for a Stacklberg-dominant retailer:dollar-markup and percentage-markup. For the market demand, we give two possibilities.One is linear demand and the other one is iso-elastic demand. For the order system, we takeemergency order in consideration.We show that when a dominant retailer switches from dollar to percentage markupunder the stochastic demand without emergency order, it will cause profit changes ofsupply chain and every part of the supply chain like manufacture and retailer. It makes alower wholesale price, and hence weakens manufacture’s profit, but retailer’s profitbecomes more. In this case, both the order quality and retail price have something to dowith the market demand, the other parts are not affected by the market demand curve.When there is emergency order system, no matter how the market is, what means bothlinear demand and iso-elastic demand, if retailer trasfer his price scheme from dollarmarkup to percentage markup, it makes wholesale price lower, retail price higher. And inthis case, it makes manufacture’s profit lower but retailer’s profit higher.In the end we show the impact of emergency order system. When the market demandis linear demand, retailer choose both dollar markup and percentage markup, usingemergency order system will make wholesale price higher and retail price lower. And itmakes both manufacuture’s profit and retailer’s profit higher. When the market demand isiso-elastic demand, no matter retailer choose which price scheme, the answer is the same. Ifthere is emergency order, the wholesale price becomes lower, retail price becomeslower,too. But the order quality increases. And the manufacture’s profit decreases and theretailer’s profit increases.