Retailer shelf-space management with trade allowance: A Stackelberg game between retailer and manufacturers

Motivated by the significant influence of trade allowance on store operation and the efficiency of shelf-space allocation, this article develops a model for optimizing category-level shelf-space management. A category shelf-space allocation framework with trade allowance is presented and a multi-pla...

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Bibliographic Details
Published in:International journal of production economics 2014-02, Vol.148, p.133-144
Main Authors: Tsao, Yu-Chung, Lu, Jye-Chyi, An, Na, Al-Khayyal, Faiz, Lu, Richard W., Han, Guanghua
Format: Article
Language:English
Subjects:
Allocations
Allowances
Decision making models
Game theory
Games
Integer programming
International trade
Inventory management
Management
Mathematical models
Mathematical problems
Nonlinear programming
Optimization
Promotion
Quantitative analysis
Statistical modeling
Studies
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Summary:Motivated by the significant influence of trade allowance on store operation and the efficiency of shelf-space allocation, this article develops a model for optimizing category-level shelf-space management. A category shelf-space allocation framework with trade allowance is presented and a multi-player Retailer Stackelberg game is introduced to model the interaction between retailer and manufacturers. With this framework, a retailer maximizes profit by taking the manufacturers' trade allowance response into account, which provides a realistic approach of simultaneously determining the shelf-space and trade promotion decisions under the consideration of interactions among products. A piecewise linearization method is employed to reformulate the Mixed Integer Nonlinear Programming (MINLP) problem into a linear MIP problem for optimal solutions. Numerical examples demonstrate significant advantage of the proposed framework and quantitative analysis leads to a variety of managerial insights.
ISSN:0925-5273
1873-7579
DOI:10.1016/j.ijpe.2013.09.018