5.

1
With the increase in Buy Back Price, the stocking quantity increases, as Ralph has more incentive to
stock newspaper as they can be salvaged at a higher price than the initial price of 0.
The fill rate hits 100% at a buy back price of $ 0.79, but the channel profit would reduce, as Ralph’s
profit would increase but Anna’s Profit would dip.
The Channel Profit is maximum at a buy back price of $ 0.75 and is equal to $ 369.79
and Stocking Quantity of Armentrout is 659

5.2
The Channel Profit is maximum at Transfer Price = $ 1.02
& Buy back Price = $ 1.025
which is 372.65
This number is slightly higher as compared to profit in problem #2 which is 371.33
5.3
A change newsstand rent won’t impact the stocking quantity because it is a function of cost of
overstocking and understocking whereas the rent is fixed expense.

6.1

The performance of the channel would improve, Anna would be able to decide the optimal stocking
quantity as Ralph would get a fixed amount irrespective of demand, Anna would be able to maximise
channel profits since Ralph won’t change the stocking quantity to increase his profits.

6.2

Drawbacks :

1. Irrespective of the sales, Anna has to pay a fixed amount to Ralph, this means even if the sales
decline Ralph would receive the same amount whereas in sharing model the losses would also be
shared.

2. Ralph might be less inclined to sell more number of newspaper as he won’t have any incentive in
selling more. Initially, the drive to sell more was related to his share of profits but now he might not
put the same effort in selling more newspapers.