Buyback contracts with price-dependent demands: Effects of demand uncertainty

Yingxue Zhao, Tsan Ming Choi, Edwin Tai Chiu Cheng, Suresh P. Sethi, Shouyang Wang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

31 Citations (Scopus)

Abstract

We explore buyback contracts in a supplier-retailer supply chain where the retailer faces a price-dependent downward-sloping demand curve subject to uncertainty. Differentiated from the existing literature, this work focuses on analytically examining how the uncertainty level embedded in market demand affects the applicability of buyback contracts in supply chain management. To this end, we seek to characterize the buyback model in terms of only the demand uncertainty level (DUL). With this new research perspective, we have obtained some interesting new findings for buyback. For example, we find that (1) even though the supply chain's efficiency will change over the DUL with a wholesale price-only contract, it will be maintained constantly at that of the corresponding deterministic demand setting with buyback, regardless of the DUL; (2) in the practice of buyback, the buyback issuer should adjust only the buyback price in reaction to different DULs while leave the wholesale price unchanged as that in the corresponding deterministic demand setting; (3) only in the demand setting with an intermediate level of the uncertainty (which is identified quantitatively in Theorem 5), buyback provision is beneficial simultaneously for the supplier, the retailer, and the supply chain system, while this is not the case in the other demand settings. This work reveals that DUL can be a critical factor affecting the applicability of supply chain contracts.
Original languageEnglish
Pages (from-to)663-673
Number of pages11
JournalEuropean Journal of Operational Research
Volume239
Issue number3
DOIs
Publication statusPublished - 16 Dec 2014

Keywords

  • Buyback contract
  • Demand uncertainty level
  • Stochastic price-dependent demand
  • Structural property
  • Supply chain management

ASJC Scopus subject areas

  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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