Marketing|inventory interactions in the characterization of retailer response to manufacturer trade deals

F. J. Arcelus and G. Srinivasan
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F. J. Arcelus: Departamento de Gestión de Empresas, Universidad Pública de Navarra, Campus de Arrosadía, 31006 Pamplona, Navarra, Spain, Postal: Departamento de Gestión de Empresas, Universidad Pública de Navarra, Campus de Arrosadía, 31006 Pamplona, Navarra, Spain
G. Srinivasan: Faculty of Administration, University of New Brunswick, P.O. Box 4400, Fredericton, Canada N.B. E3B 5A3, Postal: Faculty of Administration, University of New Brunswick, P.O. Box 4400, Fredericton, Canada N.B. E3B 5A3

Managerial and Decision Economics, 2006, vol. 27, issue 7, pages 537-547

Abstract: 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.

Date: 2006
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