Returns policy trap in a competitive supply chain with two substitutable products

摘要

This paper studies returns policy in a competitive supply chain with two substitutable products, in which returns policy is used to coordinate the channel. We find that if product substitution is ignored returns policy may greatly harm the manufacturer in situations which we call returns policy trap. In such situations, when buy-back price exceeds certain threshold called trap price, the retailer's best order quantity of the considered product drops sharply to zero, which means that the manufacturer may lose all orders. We also find that in returns policy trap all orders shift to substitute's manufacturer. When the product is easier to be substituted for or target service level is lower, the trap price is lower and the manufacturer faces more danger when using returns policy.