Price, Rebate, and Returns Supply Contracts for Coordinating Supply Chains with Price-Dependent Demands

Channel rebates and returns policies are common mechanisms for manufacturers to entice retailers to increase their order quantities and sales ultimately. However, when the underlying demand depends on the retail price, it has been known that channel coordination cannot be achieved if only one of these mechanisms is deployed. In this article, we show that a policy that combines the use of wholesale price, channel rebate, and returns can coordinate a channel with both additive and multiplicative price-dependent demands. In addition to determining the sufficient conditions for the contract parameters associated with the equilibrium policy, we show that multiple equilibrium policies for channel coordination exist. We further explore how the equilibrium policy can be adjusted to achieve Pareto improvement. Other issues such as the maximum amount of expected profit that the manufacturer can share under the coordinated channel, the structural properties of the contracts under both the additive and multiplicative price-dependent demand functions are also discussed.