Supply chain price variability under the buyback contract

Abstract

ABSTRACT Supply chain price variability, also known as the “Bullwhip effect in Pricing (BP),” refers to the absorption or amplification of the variability of prices from one stage to another in a supply chain. This article derives analytical conditions that result in BP considering a buyback contract and conducts numerical simulations to gain further insights. For this, a joint price and replenishment setting newsvendor model with a wholesale-Stackelberg game is considered. Two demand types (linear and isoelastic) are analyzed along with uniformly and normally distributed additive and multiplicative uncertainties. The outcome of this research reveals that the main influential factors that affect BP are the structure and error type of the demand functions. Absorption (amplification) in price fluctuations occurs for linear (isoelastic) demand cases. Moreover, the price variances and BP ratios differ under the buyback and wholesale-price-only cases. The overall results help understand the fluctuation of market prices under various conditions.