Wholesale price and manufacturer profit with downstream bargaining for consumer returns
by Yertai Tanai; Emmanuel Dechenaux
International Journal of Business Performance and Supply Chain Modelling (IJBPSCM), Vol. 12, No. 3, 2021

Abstract: This paper examines a closed-loop supply chain with a manufacturer, a retailer and a third-party reverse logistics provider (3PRLP). We focus on the management of consumer product returns assuming deterministic demand and rate of returns. We consider coordination between the retailer and 3PRLP over the quantity of returns processed for resale. The retailer and the 3PRLP share the gains from coordination according to Nash bargaining, with threat points that depend on the wholesale and retail prices. The relationship between product returns and manufacturer price and profit depends on the feasibility of coordination, which depends on the rate of returns. For a range of rates, manufacturer profit is less under coordination than in the uncoordinated case despite coordination yielding overall efficiency gains. In this case, the manufacturer is unable to capture gains from downstream coordination. We discuss managerial implications for the manufacturer of considering downstream coordination and bargaining over product returns.

Online publication date: Mon, 04-Oct-2021

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