Why do suppliers choose wholesale price contracts? End-of-season payments disincentivize retailer marketing effort

Anna G. Devlin (), Wedad Elmaghraby () and Rebecca W. Hamilton ()
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Anna G. Devlin: University of Alabama Huntsville
Wedad Elmaghraby: University of Maryland
Rebecca W. Hamilton: Georgetown University

Journal of the Academy of Marketing Science, 2018, vol. 46, issue 2, No 4, 212-233

Abstract: Abstract Although theoretical work has shown that end-of-season payment contracts, which allow suppliers and retailers to share the cost of unsold inventory, increase total profit, most suppliers and retailers today still use simple wholesale price contracts. In a series of experimental studies, we show that supplier preferences for wholesale price contracts can be explained by their concern that end-of-season payments contracts will disincentivize retailer marketing effort. Moreover, suppliers’ pessimistic predictions regarding reduced retailer effort are confirmed by retailers’ reduced investment in marketing effort in our experiments. Our results suggest that for suppliers and retailers to benefit from end-of-season payments contracts, retailers should publicize their demand-enhancing marketing practices.

Keywords: Contracts; Incentives; Retailer; Supplier; Supply chain relationships (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11747-017-0550-9

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