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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
##### Keywords:
newsboy Problem; supply chain; supplier interface
Full Text:
##### References:
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