Incentives for Transshipment in a Supply Chain with Decentralized Retailers

Jing Shao (), Harish Krishnan () and S. Thomas McCormick ()
Additional contact information
Jing Shao: Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada
Harish Krishnan: Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada
S. Thomas McCormick: Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada

Manufacturing & Service Operations Management, 2011, vol. 13, issue 3, 361-372

Abstract: We examine transshipment incentives in a decentralized supply chain where a monopolist distributes a product through independent retailers. A key insight is that the transshipment price determines whether the firms benefit from, or are hurt by, transshipment. In particular, we show that the manufacturer prefers to set the transshipment price as high as possible, whereas retailers prefer a lower transshipment price. Given the important role of the transshipment price in determining the benefits that each firm gets from transshipment, it is useful to consider transshipment in the case where retailers are under joint ownership (a "chain store") and the transshipment price does not play a role. This comparison yields two surprising results. First, if decentralized retailers control the transshipment price, they will choose a relatively low transshipment price as a way to mitigate the manufacturer's ability to extract profits by increasing wholesale prices; therefore, the manufacturer may prefer dealing with the chain store, which does not have a transshipment price, rather than with decentralized retailers. Similarly, the decentralized retailers can use a low transshipment price to achieve higher total profits than a chain store.

Keywords: supply chain incentives; transshipment; decentralized retailers; chain store retailer (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

Downloads: (external link)
http://dx.doi.org/10.1287/msom.1110.0326 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:13:y:2011:i:3:p:361-372

Access Statistics for this article

More articles in Manufacturing & Service Operations Management from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().