Publication Type

Journal Article

Version

Postprint

Publication Date

6-2015

Abstract

We consider a retailer with limited storage capacity selling n independent products. Each product is produced by a distinct manufacturer, who is offered a consignment contract with revenue sharing by the retailer. The retailer first sets a common revenue share for all products, and each manufacturer then determines the retail price and production quantity for his product. Under certain conditions on price elasticities and cost fractions, we find a unique optimal revenue share for all products. Surprisingly, it is optimal for the retailer not to charge any storage fee in many situations even if she is allowed to do so. Both the retailer’s and manufacturers’ profits first increase and then remain constant as the capacity increases, which implies that an optimal capacity exists. We also find that the decentralized system requires no larger storage space than the centralized system at the expense of channel profit. If products are complementary, as the degree of complementarity increases, the retailer will decrease her revenue share to encourage the manufacturers to lower their prices.

Keywords

incentives and contracting, supply chain management, capacity planning and investment, game theory, retailing

Discipline

Operations and Supply Chain Management

Research Areas

Operations Management

Publication

Manufacturing and Service Operations Management

Volume

17

Issue

4

First Page

527

Last Page

537

ISSN

1523-4614

Identifier

10.1287/msom.2015.0543

Publisher

INFORMS

Additional URL

http://dx.doi.org/10.1287/msom.2015.0543

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