Pricing and rebate policies in the two-echelon supply chain with asymmetric information under price-dependent, stochastic demand

This paper analyzes the manufacturers’ strategy of optimizing the direct rebate to the final customer and the wholesale price to a profit-maximizing retailer with a price-dependent stochastic demand. The manufacturer possesses full information about the cost and the functional relationship among demand, price and rebate, but may or may not know about the nature of the underlying demand uncertainty faced by the retailer. The conditions under which a retailer benefits from passing on such information are identified. The main features of the model are illustrated analytically and numerically, using linear or iso-elastic demand functions, with additive or multiplicative error structures. Several important implications have been derived, especially those dealing with price and rebate pass-throughs and with the cost to the manufacturer of asymmetric information. r 2008 Elsevier B.V. All rights reserved.