Supply chain coordination with quantity discounts under the uncertain demand

Quantity discount is a mechanism applied widely to ensure the Pareto improvement of supply chain system. It is shown in present literatures that quantity discounts alone cannot realize the perfect coordination, whether under the EOQ framework or the newsboy framework. In this paper, we address the challenge in dealing with the perfect coordination with the quantity discounts alone in the supplier´s view under the newsboy setting. First, we model continuous quantity discounts, which depicts the relationship between the ordering quantity and the wholesale discounts, and develop its necessary condition to achieve the perfect coordination, and then design iterative sequential search arithmetic to determine the optimal contract parameters. Hereafter, by the analysis in depth, we find that the system perfect coordination cannot reach with the discrete quantity discount due to its unilateral incentive, and the continuous one belongs to the bilateral incentive mechanism because of the transfer of the retailer´s extra welfare derived from the quantity discounts. Last, we interpret the above conclusion and make a simulation with an example.