Allocational flexibility in constrained supply chains

We show that when a one-supplier/one-newsvendor supply chain is capacity-constrained, wholesale price contracts have some flexibility in allocating the channel-optimal profit. We analyze how this flexibility changes as we change the supply chain's capacity constraint and market demand. We also explore the allocation that is achieved in equilibrium in a newsvendor procurement game. Finally, we generalize our results to risk-sharing contracts and show that those contracts also gain additional flexibility in allocating the channel-optimal profit. (C) 2014 Published by Elsevier B.V.