Optimal Pricing and Rebate Strategies in a Two-Level Supply Chain

When selling electronic products, manufacturers and retailers often o er rebates to stimulate sales. Due to certain adverse e ects, however, some manufacturers and retailers are contemplating the elimination of their rebate programs. This paper sheds light on the debate about the value of rebate programs by presenting a model for evaluating the conditions under which a rm should o er rebates in a competitive environment. Speci cally, we consider a two-level supply chain comprising one manufacturer and one retailer. Each rm makes three decisions: the regular (wholesale or retail) price, whether or not to o er rebates, and the rebate value should the rm decide to launch a rebate program. We determine the equilibrium of a vertical competition game between the manufacturer (leader) and the retailer (follower), and we provide insights about how competition a ects the conditions under which a rm should o er rebates in equilibrium.