Advance Booking Programs for Managing Supply, Demand, and Price Risks

While advance booking programs have been shown to be e¤ective for …rms to manage uncertain demand, the e¤ectiveness of such programs is unclear when supply, demand, and price risks are present in a supply chain. Motivated by an advance booking program for managing these three types of risks in a ‡u vaccine supply chain, we present a two-stage Stackelberg game model to examine the dynamic interactions between a manufacturer and a retailer over two stages. In each stage, both …rms enter a Stackelberg game: the manufacturer sets his wholesale price and the retailer determines her order quantity. However, when making the decisions in the second stage, both …rms take into account the decisions chosen in the …rst stage as well as the information about supply and demand revealed after the …rst stage. Our analysis shows that the advance booking program is always bene…cial to the manufacturer but not to the retailer especially when a supply shortage is likely to occur. Interestingly, we …nd that supply uncertainty and demand uncertainty a¤ect the …rms’pro…ts in an opposite manner under the advance booking program: the …rms’ expected pro…ts tend to decrease in supply uncertainty, but they tend to increase in demand uncertainty.