Coordinating a supply chain for a newsvendor-type product with sales effort effects

In this paper, we investigate the issue of how to coordinate a supply chain for a newsvendor-type product where demand is sensitive to both retail price and sales effort. Most related studies have shown that many of the well-known “channel coordination” contracts will fail in such a with-effort supply chain. To remedy this situation, we propose a continuous “volume discount” schedule which not only can perfectly coordinate this with-effort channel, but also enables the dominant manufacturer to arbitrarily allocate the channel profit and leave only a subsistence profit for the retailer.