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Inducing Forecast Revelation Through Restricted Returns

Abstract

We consider a supply chain consisting of one supplier selling through one retailer who faces a newsvendor problem. There is a positive probability that the retailer is capable of gaining improved demand information through costly forecasting. The supplier would like to induce the retailer to forecast and share that information. Restricting the retailer's ability to return unsold product would intuitively appear to be a viable way by which to provide the desired incentives. However, it is well known that a generous returns policy increases the supplier's profit. We explore this tension between providing incentives to forecast and capturing channel profits. We examine both price-based returns mechanisms and quantity-based returns mechanisms. Thus, a second objective of this research is to compare the relative performance of these two schemes.

Type

Working Paper

Author(s)

Martin Lariviere

Date Published

2002

Citations

Lariviere, Martin. 2002. Inducing Forecast Revelation Through Restricted Returns.

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