Optimal Prices under Revenue Sharing Contract in a Supply Chain with Direct Channel

Authors: Aussadavut Dumrongsiri

Abstract:

Westudy a dual-channel supply chain under decentralized setting in which manufacturer sells to retailer and to customers directly usingan online channel. A customer chooses the purchase-channel based on price and service quality. Also, to buy product from the retail store, the customer incurs a transportation cost influenced by the fluctuating gasoline cost. Both companies are under the revenue sharing contract. In this contract the retailer share a portion of the revenue to the manufacturer while the manufacturer will charge the lower wholesales price. The numerical result shows that the effects of gasoline costs, the revenue sharing ratio and the wholesale price play an important role in determining optimal prices. The result shows that when the gasoline price fluctuatesthe optimal on-line priceis relatively stable while the optimal retail price moves in the opposite direction of the gasoline prices.

Keywords: direct-channel, e-business, pricing model, dualchannel supply chain, gasoline cost, revenue sharing

Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1071676

References:

[1] Enright, A. "E-commerce sales rise 14.8% in 2010," Internet retailer, February 17, 2011, http:// http://www.internetretailer.com/2011/02/17/ecommerce- sales-rise-148-2010, accessed March 30, 2012.
[2] Cassar, K., Swerdlow, F. S., Kim, H., and Johnson, M. "Local Commerce: Internet Threat Mandates Brick-and-Mortar Reconstruction," Jupiter Vision Report, vol. 11, January 3, 2000.
[3] Rosencrance, L. "E-commerce sales to boom for next 5 years," ComputerWorld, February 5, 2008,
[4] Hua, G., Wang, S., and Cheng, T,"Price and lead time decisions in dualchannel supply chains," European Journal of Operational Research, vol. 205(1), pp.113, 2010.
[5] King, R., Sen, R., and Xia, M., "Impact of Web-based e-Commerce on Channel Strategy in Retailing," Int. J. Electron. Commerce vol. 8 (3), pp.103-130.April 2004.
[6] Brynjolfsson, E., and Smith, M. "Frictionless commerce? A comparison of Internet and conventional retailers," Management Science, vol.46(4), pp 563-585, 2000.
[7] Smith, M. D.; Bailey, J. and Brynjolfsson, E., Understanding Digital Markets: Review and Assessment , MIT Press , Cambridge, MA , pp. 99- 136, 2000
[8] Shern, S., Schaeffer, P., Collat, D., Distefano, J. & et al., "Global online retailing: An Ernst & Young Special Report," Stores: Global Online Retailing: An Ernst & Young Special Report, vol. 83(1), pp. 1-142. Jan. 2001.
[9] Liang, Ting-Peng, and Huang, Jin-Shiang, "An empirical study on consumer acceptance of products in electronic markets: A transaction cost model," Decision Support Systems, vol.24(1), pp. 29-43. 1998.
[10] Zrike, K., Allen, L., Hamel, K., Sommer, J., andFlemming, G., "Channel cooperation pays off,"The Forrester Report, May, 2001.
[11] Pitts, R., Willenborg, J. &Sherrell, D. (1981).Consumer Adaptation to Gasoline Price Increases, Journal of Consumer Research, 8(3), 322-330.
[12] Yan, R. andYeh, R."Consumer's online purchase cost and firm profits in a dual-channel competitive market," Marketing Intelligence & Planning, vol. 27(5), pp. 698-713, 2009.
[13] Willenborg, J. & Pitts, R.,"Gasoline Prices: Their Effect on Consumer Behavior and Attitudes," Journal of Marketing, vol.41 (1), pp. 24- 31, 1977.
[14] Hoffman, Donna, & Novak, Thomas, "Marketing in hypermedia computer-mediated environments: Conceptual foundations," Journal ofMarketing, vol. 60(3), pp. 50, 1996.
[15] Dumrongsiri, A., Fan, M.., Jain, A., andMoinzadeh, K. "A supply chain model with direct and retail channels," European Journal of Operational Research, vol. 187(3), pp. 691-718, June 2008.