Mail-in-rebates vs.combined rebate mechanism : Which of them is more effective for supply chain coordination?

This paper considers a business setting, where a Supplier sells a fashion product to a Buyer, who in turn sells the product to the end consumers. Both the Supplier and the Buyer set their own selling price. The end consumer demand is assumed to be a linearly decreasing function of the final selling price (retail price). First, this paper compares the performance of mail-in-rebate mechanism and the no-rebate scenario. This comparative analysis shows that whatever the rebate value is, the Buyer always benefits from the mail-in-rebate mechanism. The Supplier benefits from mail-in-rebate when the rebate value is set within a specific range. The rebate value that optimizes the Supply Chain does not provide any additional profit for the Supplier. Secondly, we design a new rebate mechanism known as the combined rebate mechanism (Buyer provides a rebate to the end consumer and the Supplier provides a wholesale price rebate to the Buyer) and compare its performance with that of the mail-in-rebate mechanism. The comparative analysis shows that the combined rebate mechanism can coordinate the Supply Chain by retaining the maximum Suppliers profit as in the mail-in-rebate mechanism and provides a higher profit for the Buyer when compared to the mail-in-rebate mechanism. Moreover, the combined rebate mechanism is easy to implement and less costly to administer. A final conclusion is that Consumers receive greater surplus with the combined rebate and demand a greater quantity