Selling price 70 $/unit Demand scenario - each retailer 6000 7000 8000

Wholesale price 45 $/unit Probabilistic 10% 12% 25%

Salvage value 15 $/unit
Production cost 20 $/unit Decentralized
Order quant. for each retailer
5000 $125,000 $125,000 $125,000
6000 $150,000 $150,000 $150,000
7000 $120,000 $175,000 $175,000
8000 $90,000 $145,000 $200,000
9000 $60,000 $115,000 $170,000
10000 $30,000 $85,000 $140,000
11000 $0 $55,000 $110,000
12000 -$30,000 $25,000 $80,000
13000 -$60,000 -$5,000 $50,000
14000 -$90,000 -$35,000 $20,000
15000 -$120,000 -$65,000 -$10,000
16000 -$150,000 -$95,000 -$40,000

Retailer 1's demand scenario

Centralized - Joint probability 6000 7000 8000
6000 1.00% 1.20% 2.50%
7000 1.20% 1.44% 3.00%
Retailer 2's 8000 2.50% 3.00% 6.25%
demand scenario 9000 2.50% 3.00% 6.25%
10000 1.80% 2.16% 4.50%
11000 1.00% 1.20% 2.50%

Order quant. for the system (R1+R2)

12,000 $300,000 $300,000 $300,000
13,000 $270,000 $325,000 $325,000
14,000 $240,000 $295,000 $350,000
15,000 $210,000 $265,000 $320,000
16,000 $180,000 $235,000 $290,000
17,000 $150,000 $205,000 $260,000
18,000 $120,000 $175,000 $230,000
19,000 $90,000 $145,000 $200,000
20,000 $60,000 $115,000 $170,000
21,000 $30,000 $85,000 $140,000
22,000 $0 $55,000 $110,000
 9000 10000 11000
25% 18% 10%

Expected profit Manufacturer's profit System's profit

$125,000 $125,000 $125,000 $125,000
$150,000 $150,000 $150,000 $150,000
$175,000 $175,000 $175,000 $169,500
$200,000 $200,000 $200,000 $182,400 $400,000 $764,800
$225,000 $225,000 $225,000 $181,550
$195,000 $250,000 $250,000 $166,950
$165,000 $220,000 $275,000 $142,450
$135,000 $190,000 $245,000 $112,450
$105,000 $160,000 $215,000 $82,450
$75,000 $130,000 $185,000 $52,450
$45,000 $100,000 $155,000 $22,450
$15,000 $70,000 $125,000 -$7,550

ailer 1's demand scenario both retaliers

9000 10000 11000 Centralized system's demand 12000 13000 14000
2.50% 1.80% 1.00% Acc joint Probability 1.00% 2.40% 6.44%
3.00% 2.16% 1.20%
6.25% 4.50% 2.50%
6.25% 4.50% 2.50%
4.50% 3.24% 1.80%
2.50% 1.80% 1.00%

$300,000 $300,000 $300,000 $300,000 $300,000 $300,000 $300,000 $300,000

$325,000 $325,000 $325,000 $325,000 $325,000 $325,000 $325,000 $325,000
$350,000 $350,000 $350,000 $350,000 $350,000 $350,000 $350,000 $350,000
$375,000 $375,000 $375,000 $375,000 $375,000 $375,000 $375,000 $375,000
$345,000 $400,000 $400,000 $400,000 $400,000 $400,000 $400,000 $400,000
$315,000 $370,000 $425,000 $425,000 $425,000 $425,000 $425,000 $425,000
$285,000 $340,000 $395,000 $450,000 $450,000 $450,000 $450,000 $450,000
$255,000 $310,000 $365,000 $420,000 $475,000 $475,000 $475,000 $475,000
$225,000 $280,000 $335,000 $390,000 $445,000 $500,000 $500,000 $500,000
$195,000 $250,000 $305,000 $360,000 $415,000 $470,000 $525,000 $525,000
$165,000 $220,000 $275,000 $330,000 $385,000 $440,000 $495,000 $550,000
 15000 16000 17000 18000 19000 20000 21000 22000
11.00% 15.85% 18.82% 17.65% 14.00% 8.24% 3.60% 1.00%

Ex. R. profit manu.profit syst. Profit

$300,000
$324,450
$347,580
$367,168
$380,706
$385,527 $425,000 $805,706 $192,763
$379,996
$364,758
$341,820
$314,350
$284,900
 production cost 35
Whole sales price 80
Selling price 125
salvage cost 20

Decentralize

Order quantity 8000 10000 12000 14000 16000 18000

5000 225 225 225 225 225 225
6000 270 270 270 270 270 270
7000 315 315 315 315 315 315
8000 360 360 360 360 360 360
9000 300 405 405 405 405 405
10000 240 450 450 450 450 450
11000 180 390 495 495 495 495
12000 120 330 540 540 540 540
13000 60 270 480 585 585 585
14000 0 210 420 630 630 630
15000 -60 150 360 570 675 675
16000 -120 90 300 510 720 720
 Demand Probabilistic
45 manu. Profit 8,000 11%
45 retailer profit 10,000 11%
60 lost sale 12,000 28%
14,000 22%
16,000 18%
18,000 10%

Retailer Average 500

profit (in
Order quantity Thousands) Manu's profit 450
5000 225 225
6000 270 270 400
7000 315 315
8000 360 360 350
9000 393.45 405
10000 426.9 450 300
11000 448.8 495
12000 470.7 540 250
13000 463.2 585
14000 455.7 630 200
15000 425.1 675
150
16000 394.5 720 4000 6000 8
6000 8000 10000 12000 14000 16000