Contract choice and advance selling strategy in a supply chain of FAP

Abstract

The advance selling (AS) has been widely applied in fresh industry for it can elevating the customer experience and increase flexibility thus profit for a retailer. However, the introduction of the AS will have an impact on spot market in pricing strategy, market share and the profit of the retailer. Hence, to coordinate the supply chain and improve the efficiency of the agricultural supply chain, a two-stage game theory model is constructed to analyze the effects of AS on three classic contracts: wholesale price, quantity discount and revenue-sharing contract. This paper also discusses the boundary conditions of whether a retailer should sell in advance. The conclusions of this paper are as follows: First, revenue-sharing contracts are superior to wholesale price and quantity discount contracts when retailers sell in advance, the wholesale price contract can perform better than the quantity discount contract in the presence of AS if the contract parameter is properly set. Second, a revenue-sharing contract that normally coordinates the supply chain can performs poorly when the retailer sells in advance that the social welfare would be higher if using a quantity discount contract instead. These conclusions have important implications for suppliers when retailers sell in advance. Such suppliers need to design appropriate contracts to distribute FAP that carefully take into consideration the AS activities in the market.