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EOR
2007

The use of a premium-payment scheme in a supply chain involving capacity acquisition

13 years 3 months ago
The use of a premium-payment scheme in a supply chain involving capacity acquisition
We study a practice whereby a downstream firm makes to his supplier a premium-payment for a certain quantity of products. We show that the adoption of this practice can induce the supplier to build bigger capacity. The higher capacity level enables the supplier to satisfy a larger portion of demands from the downstream firm, and this leads to higher payoffs for both parties in the supply chain. With the assistance of an under-capacity penalty imposed on the supplier, this premium-payment scheme can help lure the parties into taking the channel-optimal actions. Our numerical examples help reveal various features of the scheme. Ó 2006 Elsevier B.V. All rights reserved.
Jian Yang, Shitao Yang
Added 13 Dec 2010
Updated 13 Dec 2010
Type Journal
Year 2007
Where EOR
Authors Jian Yang, Shitao Yang
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