Title: Coordinating a two-stage supply chain via a markdown money and advertising subsidy contract

Authors: Tiaojun Xiao, Xinxin Yan

Addresses: School of Management Science and Engineering, Nanjing University, Hankou Road 22, Nanjing, Jiangsu 210093, China. ' School of Management Science and Engineering, Nanjing University, Hankou Road 22, Nanjing, Jiangsu 210093, China

Abstract: This paper explores coordination of a supply chain consisting of one manufacturer and one retailer and studies Pareto condition of coordination mechanism under additive and multiplicative demand uncertainties where the retailer jointly determines order quantity and advertising level. We develop a markdown-money and advertising-subsidy mechanism to coordinate the supply chain in each case of uncertainty. Under a uniform distribution, a higher chargeback rate is along with a higher fraction of advertising expenditure shared by the manufacturer and the coordination mechanism is robust to error form. In the coordinated setting, whether salvage value influences the advertising level depends on the error form. Higher advertising elasticity or scaling constant implies a lower efficiency in each error case due to a higher mean demand, while the effect of the unit salvage value on the efficiency depends on the error form.

Keywords: newsboy problem; coordination mechanism; cooperative advertising; game theory; supply chain management; SCM; two-stage supply chains; markdown money; advertising subsidy; demand uncertainties; order quantity.

DOI: 10.1504/IJIDS.2011.040419

International Journal of Information and Decision Sciences, 2011 Vol.3 No.2, pp.107 - 127

Published online: 26 May 2011 *

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