Single-vendor multi-buyer discount pricing model under stochastic demand environment

Authors:
Santanu Sinha;S. P. Sarmah
Affiliations:
Complex Decision Support Systems, Tata Consultancy Services, Mumbai 400 093, India;Department of Industrial Engineering and Management, Indian Institute of Technology, Kharagpur 721 302, India
Venue:
Computers and Industrial Engineering
Year:
2010

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Abstract

In this paper, a single-vendor multi-buyer discount pricing model has been developed under stochastic demand information. The vendor offers multiple pricing schedules to encourage the buyers to adopt the global optimal policy instead of their individual optimal ordering policy. The global optimal solution ensures that each buyer is assigned to the best schedule with maximum benefit. The results show that coordination benefit increases with increase in the number of pricing schedules. However, the system performance deteriorates with increasing demand variability and service level. Hence, if the system contains high degree of uncertainty or each buyer sets her service level too high, coordination through discount policy may not be an efficient mechanism to enhance channel profitability.