Essays on Supply Chain Contracting and Retail Pricing.

Abstract

An important operational decision that a seller has to make is how to price his product under different situations. This dissertation addresses three unique pricing problems, commonly faced by a seller in a supply chain, in a series of three essays.

The first essay considers a supplier's problem of choosing which type of contracts to offer to a retailer whose demand forecasts can be improved over time. It is shown that there exist mechanisms which enable the supplier to always benefit from the retailer's improved demand forecasts. Such a mechanism consists of an initial contract, offered to the retailer before she obtains improved forecasts, and a later contract (contingent on the initial contract), offered to the retailer after she obtains improved forecasts.

The second essay investigates a retailer's problem of choosing which form of price promotions to offer to consumers, some of which are more inclined to increase spending when satisfied with the value of the deals. Two types of promotions are considered: i) all-unit discount, where a price reduction applies to every unit of a purchase that meets the minimum requirement, and ii) fixed-amount discount, where the final amount that a consumer has to pay is reduced by a predetermined discount amount if the purchase meets the minimum requirement. It is shown that both discount schemes can induce consumers to overspend. However, depending on consumer valuation of the product, one scheme can be more profitable to the retailer than the other.

The third essay discusses a dual-channel retailer's problem of choosing a price differentiating policy (charging different prices for the same product sold at different channels) and/or inventory transshipping policy (transferring inventory between the channels) to balance available inventory and demand arriving at each channel. It is shown that the two mechanisms have different implications on sales volume. Which mechanism is more effective depends on the retailer's initial inventory position. Furthermore, when implemented concurrently, the benefit from price differentiation and inventory transshipment mechanisms may either substitute or complement each other.