Price is the most significant factor in purchasing behavior from the downstream to the upstream of a supply chain. Researches on stochastic demand have been conducted intensively. Emmons and Gilbert (1998) discussed the optimal ordering, pricing and return policy with uncertain demand. Petruzzi and Dada (1999) explored the newsboy problems and developed a two-level newsboy inventory and pricing model. Lau and Lau (2002) discussed how to reduced uncertainty and resolved the newsboy problem with uncertain demand. Taylor (2002) suggested that the manufacturers should compare different data of demands to coordinate the supply chain. Granot and Yin (2008) suggested the manufacturer can focus on the wholesale price and the retailer can focus on pricing and ordering method in newsboy model with uncertain demands.
According to our intensive literature research, there was no research that analyzes contract strategy and uncertain demand for different supply chain environments. This research tries to fill the gap in this area.
STRATEGIC CONTRACT MODELS
This study extends the revenue sharing model by Qin and Yang (2008) and considers the shortage cost sharing and return policy by Leng and Parlar (2010). The Bi-level models were applied to examine results under different business environments. In the revenue and shortage cost sharing contract, high sharing rate α of the manufacturer leads to a preferred wholesale price for the retailer as a feedback mechanism. In the return policy contract, manufacturers will buy back the entire surplus product with price b. This price b follows the condition: rcwb+−≥ to avoid double profit.
We define the following conditions:]1,0(∈αand )1(α−s where αp and αs denotes respectively the sharing rate and shortage cost shared by both players in the contract. The flow of the contract is shown in Figure 1.