Optimal pricing and returns policies for innovative products with the one-shot decision theory

Abstract

This paper deals with the channel coordination problem in the supply chain for an innovative product. The partially known information about the demand is represented by a possibility distribution. Since the life cycle of the innovative product is short, how to determine the optimal order amount is a typical one-shot decision problem. With the one-shot decision theory, Stackelberg equilibriums are obtained for the optimal wholesale price of the manufacturer and the optimal order quantity of the retailer with price-only contract (asymmetric information) and returns (symmetric information). The channel coordination is achieved by using returns policies. The proposed models are scenario-based decision models which provide a fundamental alternative to analyze issues of channel coordination for innovative products.