Coordination of Supply Chain with Advertise-and-Price-Setting Newsvendor

In this paper, we study the coordination of a decentralized supply chain in which a single manufacturer is selling a perishable product to a single retailer facing uncertain demand affected by her adverting expenditure and selling price and having shortage penalty. When the retailer behaving as a newsvendor faces stochastic advertisement and price sensitive demands, she has to make the advertising, pricing and ordering decisions before the demand is realized. We first establish the centralized model and prove that the supply chain can not be coordinated with the revenue sharing contract. We then show quantity discount contract can coordinate the supply chain and testify the special quantity discount contract can. not coordinate our supply chain setting that was used in [8] to coordinate the newsvendor with demand dependent on price and effort. Finally, we prove the revenue and loss sharing contract presented in [12] coordinate the newsvendor with demand dependent on advertising expenditure also can not coordinate our supply chain setting and propose a contract called improved revenue and loss sharing contract which coordinates the decentralized supply chain.