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Volume discount pricing strategy in the VMI supply chain with price sensitive demand

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Journal of the Operational Research Society

Abstract

This paper develops a volume discount scheme to coordinate Vendor Managed Inventory (VMI) supply chains with multiple heterogeneous retailers, in which the supply chain is modelled as a Stackelberg game with price sensitive demand. The paper proposes a method to construct a volume discount price scheme and shows that, any volume discount can be represented as a piecewise constant function of demand. We provide the game formulations of VMI supply chains and develop algorithms to solve this type of game problems, including finding the optimal volume discount scheme. Through a numerical study comparing the results of applying a volume discount strategy with the profits from a single wholesale price strategy, we show that the volume discount pricing strategies can be used to improve profits for all participants in the VMI supply chain in comparison with single price strategies.

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Acknowledgements

The authors would like to thank the editor and referees for their valuable comments and suggestions that have helped us greatly in improving the paper.

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Authors and Affiliations

  1. University of Manchester, Lancashire, UK

    S Braide, Z Cao & X Zeng

  2. National University of Defense Technology, Changsha Hunan, China

    Z Cao

Authors
  1. S Braide
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  2. Z Cao
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  3. X Zeng
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Corresponding author

Correspondence to Z Cao.

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Correction

In an earlier version of this article the first author's name was spelt incorrectly. This has been corrected.

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Braide, S., Cao, Z. & Zeng, X. Volume discount pricing strategy in the VMI supply chain with price sensitive demand. J Oper Res Soc 64, 833–847 (2013). https://doi.org/10.1057/jors.2012.85

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  • DOI: https://doi.org/10.1057/jors.2012.85

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