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Manufacturer-to-Retailer versus Manufacturer-to-Consumer Rebates in a Supply Chain

Summary: Manufacturer-to-Retailer versus Manufacturer-to-Consumer
Rebates in a Supply Chain
Goker Aydin
Department of Industrial and Operations Engineering
The University of Michigan
Evan L. Porteus
Graduate School of Business
Stanford University
Starting with a newsvendor model (single-product, single-period, stochastic demand), we
build a single-retailer, single-manufacturer supply chain with endogenous manufacturer rebates
and retail pricing. The demand uncertainty is multiplicative, and the expected demand depends
on the effective (retail) price of the product. A retailer rebate goes from the manufacturer to the
retailer for each unit it sells. A consumer rebate goes from the manufacturer to the consumers
for each unit they buy. Each consumer's response to consumer rebates is characterized by two
exogenous parameters: , the effective fraction of the consumer rebate that the consumer values,
leading to the lower effective retail price perceived by the consumer, and , the probability that
a consumer rebate will be redeemed. The type(s) of rebate(s) allowed and the unit wholesale
price are given exogenously. Simultaneously, the manufacturer sets the size of the rebate(s) and
the retailer sets the retail price. The retailer then decides how many units of the product to stock


Source: Aydin, Goker - Department of Operations and Decision Technologies, Indiana University Bloomington


Collections: Engineering