The Performance of Linear Rebates with Price Dependent Demands

This paper is concerned with the study of linear rebate contracts as applied in supply chain from the supplier´s perspective. Consider a supply chain comprised of a retailer and a supplier and the customer demands stochastically dependent on the retail price. The retailer´s optimal policy for setting the retail price is first investigated. We then develop the optimal decision of the supplier and prove that a linear rebate can be beneficial to the supplier if the wholesale price is sufficiently high.