Demand uncertainty and returns policies for a seasonal product: An alternative model

Marvel and Peck [International Economic Review 36 (1995) 691-714] considere d the following seasonal-product problem: A manufacturer sets wholesale pri ce ($p(w)/unit) and return credit ($r/unit); the retailer then sets retaile r price ($p(R)/unit) and order quantity (Q). How should the manufacturer se t p(w) and r? Demand uncertainty consists of two components: "valuation" an d "customers' arrivals". Our more realistic models reveal effects unobserva ble from Marvel-Peck's. E.g.: (i) Setting r>0 benefits the manufacturer muc h more than the retailer. (ii) "Valuation" (but not "customer-arrival") unc ertainty is imperative for the retailer; without it, the manufacturer can s et p(2) and r such that he reaps most of the profits. (C) 2000 Elsevier Sci ence B.V. All rights reserved.