The Informational Role of Buyback Contracts

• 成果类型: Article
• 署名作者: Wang, Shouqiang; Gurnani, Haresh; Subramanian, Upender
• 署名单位: University of Texas System; University of Texas Dallas; Wake Forest University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2019.3552
• 发表日期: 2021
• 页码: 279-296
• 关键词: buyback contracts; inventory; returns; demand potential; prices; signaling

摘要

Manufacturers often offer retailers buyback contracts to reduce retailers' inventory costs by repurchasing unsold inventory at a prespecified returns price. We examine the signaling role of buyback contracts when the retailer is less informed about either the manufacturer's reliability of honoring the buyback commitment (e.g., for a small/less-established manufacturer) or its product's market potential (e.g., for a national brand manufacturer). We find that these two situations yield contrasting buyback designs: the manufacturer must distort the wholesale and returns prices downward to signal higher reliability, but upward to signal higher market potential. Nevertheless, the signaling mechanism in both cases hinges on suitably distorting the manufacturer's returns cost (i.e., the cost of repurchasing a retailer's unsold inventory) by influencing the retailer's regular stock (i.e., the portion of inventory carried to meet average demand) and safety stock (i.e., the extra inventory carried to meet potential high demand). Notably, although prior research has highlighted the signaling role of the wholesale price, we show how and why, in a channel with inventory, the returns price plays a relatively more important role. In particular, efficient signaling entails that the returns price is used to distort the manufacturer's returns cost, whereas the wholesale price is used only to mitigate the resulting distortion in the retailer's order quantity. In fact, the returns price emerges as a more efficient signaling instrument and reverses the direction of wholesale price distortion from what is necessary if wholesale price alone is used to signal. We also examine the implications when the two dimensions of manufacturer's private information are correlated.