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Marketing/inventory interactions in the characterization of retailer response to manufacturer trade deals
Author(s) -
Arcelus F. J.,
Srinivasan G.
Publication year - 2006
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.1272
Subject(s) - business , characterization (materials science) , industrial organization , marketing , microeconomics , economics , nanotechnology , materials science
This paper presents a characterization of a profit‐maximizing retailer's response to a manufacturer trade deal that encompasses both marketing and operations concerns. Price pass‐through behaviour is based on demand being realized over time, at a given rate, thereby allowing for the introduction of inventory‐related costs. The analysis establishes a direct and positive link between the incidence of forward buying and the incidence of more‐than‐100% price pass‐through policies. As a result, unless restricted by anti‐hoarding policies, the profit‐maximizing retailer's strategy tends towards large price reductions, but only for a small fraction of the units acquired at the discounted price. Copyright © 2006 John Wiley & Sons, Ltd.