Analysis of a partial-advance-booking contract with price decision

In this paper, we study the impact of retailer´s pricing power on the supply chain parties with a partial-advance-booking (PAB) contract by which the retailer can order before or after demand realization at different wholesale prices. The retailing price is determined after demand realization. We model the problem as a two-stage newsvendor problem under a PAB contract and regard push and pull contracts as its reduced situations. We show the existence of a threshold by which the retailer will choose push and PAB. Specifically, when the wholesale price for orders before demand realization is lower (higher) than the threshold, the supply chain will operate in push (PAB) contract. Interestingly, we find that retailer´s pricing power may harm the supplier´s producing quantity. By a numerical illustration, we analyze the impact of the sensitivity of demand on price and the fluctuation rate of the demand. We find that the supplier and the retailer is more sensitive to the price sensitivity and benefit more from the demand uncertainty when w₂ is high and low respectively.