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Manufacturer’s pricing strategy and return policy for a single-period commodity. (English) Zbl 1009.90005
Summary: This paper presents a model for designing the pricing and return-credit strategy for a monopolistic manufacturer of single-period commodities. That is, given the unit manufacturing cost and the unit retail sale price, the manufacturer determines: (i) the unit price \(C\) to be charged against the retailer; and (ii) the unit credit \(V\) to be given to the retailer for units returned. While the manufacturer is allowed to set \(C\) and \(V\), the order quantity \(Q\) is set by the retailer in response to the manufacturer’s \(C\) and \(V\). Among the unexpected findings derived from our model are: (i) unless an external force supports the retailer, otherwise the manufacturer can usually design a \((C,V)\)-scheme that gives himself the lion’s share of the profit; (ii) depending on the risk attitudes of the manufacturer and the retailer, the optimal return policy can range from “no returns allowed” to “unlimited returns with full credit”; (iii) instead of losing his profit share to the retailer, a return-credits agreement can often be manipulated by a shrewd manufacturer to increase his profit.

MSC:
90B05 Inventory, storage, reservoirs
90B30 Production models
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