Effects of Reservation Profit Level on the Efficiency of Supply Chain Contracts

The level of reservation profit is one of the important factors affecting the efficiency of supply chain. Consider a two-tier supply chain system consisting of a manufacturer and a retailer to study the effects of reservation profit levels of different supply chain members on the feasibility and efficiency of wholesale price contract and agency selling contract. The results show that if the unit production cost is sufficiently low, the agency selling contract is more efficient (less efficient) than the wholesale price contract when the reservation profit level of the retailer is below (above) a certain threshold. However, if the unit production cost is sufficiently high, the wholesale price contract is always superior to the agency selling contract in efficiency. For the feasibility of the two types of contracts, we find that when the unit production cost is sufficiently high, the feasibility range of the wholesale price contract is wider than that of the agency selling contract.