production cost 20

Whole sales price 45 25

Selling price 70 25
salvage cost 15 30

Decentralize

Order quantity 6000 7000 8000 9000 10000 11000

3000 75 75 75 75 75 75
4000 100 100 100 100 100 100
5000 125 125 125 125 125 125
6000 150 150 150 150 150 150
7000 120 175 175 175 175 175
8000 90 145 200 200 200 200
9000 60 115 170 225 225 225
10000 30 85 140 195 250 250
11000 0 55 110 165 220 275
12000 -30 25 80 135 190 245
13000 -60 -5 50 105 160 215
14000 -90 -35 20 75 130 185
 Demand Probabilistic
manu. Profit 6,000 10%
retailer profit 7,000 12%
lost sale 8,000 25%
9,000 25%
10,000 18%
11,000 10%

Retailer Average 500

Order quantity profit (in Manu's profit
Thousands) 450
6000 75 150
7000 100 175 400
8000 125 200
9000 150 225 350
10000 169.5 250
11000 182.4 275 300
12000 181.55 300
13000 166.95 325 250
14000 142.45 350
15000 112.45 375 200
16000 82.45 400
150
17000 52.45 425 4000 6000 8000 10000 12000
 500

450

400

350

300

250

200

150
8000 10000 12000 14000 16000 4000 6000 8000 10000 12000 14000 16000
12000 14000 16000
 P 70 Demand scenario - each retailer 6000 7000
W 45 Probability 10% 12%
S 15
VC 20 Decentralized
Order quant. for each retailer
5000 $125,000 $125,000
6000 $150,000 $150,000
7000 $120,000 $175,000
8000 $90,000 $145,000
9000 $60,000 $115,000
10000 $30,000 $85,000
11000 $0 $55,000
12000 -$30,000 $25,000
13000 -$60,000 -$5,000
14000 -$90,000 -$35,000
15000 -$120,000 -$65,000
16000 -$150,000 -$95,000

Retailer 1'
Centralized - Joint probability 5000 6000
5000 1.10% 1.32%
6000 1.10% 1.32%
Retailer 2's 7000 2.80% 3.36%
demand
scenario 8000 2.20% 2.64%
9000 1.80% 2.16%
10000 1.00% 1.20%

Order quant. for the system (R1+R2)

10000 $250,000 $250,000
11000 $220,000 $275,000
12000 $190,000 $245,000
13000 $160,000 $215,000
14000 $130,000 $185,000
15000 $100,000 $155,000
16000 $70,000 $125,000
17000 $40,000 $95,000
18000 $10,000 $65,000
19000 -$20,000 $35,000
20000 -$50,000 $5,000
 8000 9000 10000 11000
25% 25% 18% 10%

Expected profit
$125,000 $125,000 $125,000 $125,000 125000
$150,000 $150,000 $150,000 $150,000 $150,000
$175,000 $175,000 $175,000 $175,000 169500
$200,000 $200,000 $200,000 $200,000 182400
$170,000 $225,000 $225,000 $225,000 $181,550
$140,000 $195,000 $250,000 $250,000 $166,950
$110,000 $165,000 $220,000 $275,000 $142,450
$80,000 $135,000 $190,000 $245,000 $112,450
$50,000 $105,000 $160,000 $215,000 $82,450
$20,000 $75,000 $130,000 $185,000 $52,450
-$10,000 $45,000 $100,000 $155,000 $22,450
-$40,000 $15,000 $70,000 $125,000 -$7,550

Retailer 1's demand scenario

7000 8000 9000 10000
2.75% 2.75% 1.98% 1.10%
2.75% 2.75% 1.98% 1.10%
7.00% 7.00% 5.04% 2.80%
5.50% 5.50% 3.96% 2.20%
4.50% 4.50% 3.24% 1.80%
2.50% 2.50% 1.80% 1.00%

$250,000 $250,000 $250,000 $250,000 $250,000

$275,000 $275,000 $275,000 $275,000 $275,000
$300,000 $300,000 $300,000 $300,000 $300,000
$270,000 $325,000 $325,000 $325,000 $325,000
$240,000 $295,000 $350,000 $350,000 $350,000
$210,000 $265,000 $320,000 $375,000 $375,000
$180,000 $235,000 $290,000 $345,000 $400,000
$150,000 $205,000 $260,000 $315,000 $370,000
$120,000 $175,000 $230,000 $285,000 $340,000
$90,000 $145,000 $200,000 $255,000 $310,000
$60,000 $115,000 $170,000 $225,000 $280,000
 Manufacturer's profit System's profit

350000 689000

both retaliers
Centralized system's demand 10000 11000 12000 13000
Acc joint Probability 1.10% 2.42% 6.87% 11.06%

Ex. R. profit
$250,000 $250,000 $250,000 $250,000 $250,000
$275,000 $275,000 $275,000 $275,000 $274,395
$300,000 $300,000 $300,000 $300,000 $297,459
$325,000 $325,000 $325,000 $325,000 $316,745
$350,000 $350,000 $350,000 $350,000 $329,947
375000 375000 375000 375000 334256
$400,000 $400,000 $400,000 $400,000 $328,258
$425,000 $425,000 $425,000 $425,000 $312,723
$395,000 $450,000 $450,000 $450,000 $289,620
$365,000 $420,000 $475,000 $475,000 $262,150
$335,000 $390,000 $445,000 $500,000 $232,700
 14000 15000 16000 17000 18000 19000 20000
16.17% 18.74% 17.34% 13.76% 7.94% 3.60% 1.00%

manu.profit syst. Profit Expected profit

$250,000 $500,000 $125,000
$275,000 $549,395 $137,198
$300,000 $597,459 $148,730
$325,000 $641,745 $158,372
$350,000 $679,947 $164,974
375000 709256 167128
$400,000 $728,258 $164,129
$425,000 $737,723 $156,362
$450,000 $739,620 $144,810
$475,000 $737,150 $131,075
$500,000 $732,700 $116,350