Channel coordination through discount pricing policies when demand is price and effort dependent

In this paper, we investigate the performance of discount pricing policies as coordination mechanisms in decentralized channels where demand is sensitive to both price and sales effort. Most related studies have shown that volume discount is an effective channel coordination device. However, our paper shows that, when demand is affected by both price and sales effort, regular volume discount not only is unable to coordinate the channel effectively, but some times it performs even worse than the simple price-only contract. Fortunately, our results show that a continuous volume discount schedule can perfectly coordinate such an effort-sensitive channel.