RETURNS SYSTEM WITH REBATES*

We consider a variant of the newsvendor problem. Atomistic retailers each buy merchandise from a monopoly supplier for resale at a market‐determined common retail price that depends upon the total industry order quantity and upon a stochastic demand. After the orders are filled, the supplier learns the realization of demand but the retailers do not. We show that, in this setting, a returns system with rebates (with previously set buy‐back price for returns and ex post payments from the supplier to each retailer per unit actually sold) implements the optimal production and sales strategy, attaining maximum expected profit in the channel.     

Marketing Channels and Retail Store Density in East Asia*

By measuring retail store density with regard to population, several studies have indicated that marketing channels in Asia are different from those in the USA and European countries. The present paper investigates to what extent a model similar to Flath and Nariu (1996) can empirically predict retail densities in Japan and China. The results suggest that the secular decline in the number of retail stores in Japan primarily results from the proliferation of car ownership and the expansion in the average size of a dwelling. We also demonstrate that the model accounts for the large variations in China's retail density.     

Third-Degree Price Discrimination in the Presence of Asymmetric Consumption Externalities

In this paper, we consider third-degree price discrimination in two markets in the presence of asymmetric consumption externalities; we establish that under plausible conditions, a firm reduces its price in the market with low price elasticity of demand. The firm can increase its profits by reducing the price for these consumers and enlarging the demand for other consumers, provided that positive consumption externalities exist. Moreover, we show that third-degree price discrimination enhances not only the firm’s profit but also total consumer surplus.

Distribution Channel Management in an Internet Age: Equilibrium and Social Welfare

This paper considers the conditions under which a monopoly manufacturer selling through independent retailers in a spatial market will add an Internet distribution channel (an e-channel), and analyzes the effect this would have on consumer surplus and social welfare. We find that an e-channel will be added only if consumer??s travel costs are high and the e-retailer??s delivery costs are low. Such double-channel operation will decrease consumer surplus if in the pre-entry case the market is fully covered by brick-and-mortar retailers. If instead the market is partially covered and delivery costs are sufficiently high, it will not decrease any consumer??s surplus. When delivery costs are low, social welfare will be improved by profitable double-channel operation even if consumer surplus is harmed by it. Finally, double-channel operation could be Pareto superior even if delivery costs are high.