Price competition for retailers with profit and revenue targets

Shilei Yang, Shi, Chunming (Victor), Yibin Zhang and Jing Zhu

International Journal of Production Economics, 2014, vol. 154, issue C, 233-242

Abstract: Price competition for retailers has been extensively studied in the literature assuming the objective of (expected) profit maximization. In this paper, we make a major contribution by studying price competition for retailers with both profit and revenue targets. Consequently, each retailer maximizes her profit and revenue probability, namely, the probability of achieving the profit and revenue targets simultaneously. More specifically, we analyze a scenario where two competing retailers purchase a perishable product from a common supplier and sell to a common market. Employing the isoelastic demand model, we derive the closed-form solutions of the optimal order quantity, the optimal selling price, and the maximal profit and revenue probability for each retailer. It is shown that when revenue is a relevant performance measure, positive and non-positive salvage values lead to different optima for competing retailers. Moreover, as price elasticity and/or price competition intensity becomes higher, the optimal retail price decreases and the optimal order quantity increases for each retailer.

Keywords: Price competition; Newsvendor; Profit targets; Revenue targets (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:154:y:2014:i:c:p:233-242

DOI: 10.1016/j.ijpe.2014.04.022

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