Pricing And Contract Design In The Secondary Supply Chain Management

The decision problems are considered in the secondary supply chain management. In the newsvendor model, the retailer needs to decide the inventory level and the price before the selling season.Two cost structures have been investigated: the in-house production case in which the firm pays for the input quantity and the procure ment case in which the firm pays for the quantity received only. B y following this research line, the third model is developed here: th e double-pay case in which the firm not only pays for the quantity received but also pays for the defective quantity. The objective is t o investigate the effect of yield randomness on optimal decisions an d the expected profit. The result is similar to the procurement case:a stochastically larger yield rate leads to a lower or higher optimal price and a lower or higher profit. Further, a less variable yield rat e leads to a lower price and a higher profit. The order quantity is not universal under two conditions.The principal-agent model in secondary supply chain is also co nsidered. The market demand is an exponential function of price, re tailers' effort level, product quantity and market random factors. Wit h symmetry information, two optimal contract designs are compared.In one case, there is the profit retention. In the other one both side s conduct Stackelberg game. The result shows that, if the profit ret ention is promised, the margin of manufacturers is optimal when th e percentage is zero with which the manufacturer provides the retail er. And the margin of the retailer is just the quantity of the profit retention. If both sides conduct Stackelberg game, the overall profit of the supply chain is superior to the overall profit of the supply c hain under the profit retention regime.