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Abstract There emerges a promotion strategy in supply chain where manufacturers incentivize retailers and consumers by allocating a product discount between them when one product is sold successfully, termed as shared discount strategy. This study explores the impacts of the discount allocation ratio on the manufacturer’s optimal wholesale price and the retailer’s order quantity decisions, and then compares this strategy with the wholesale price discount strategy and the unsold-discount strategy. The results demonstrate that the manufacturer’s optimal wholesale price under the shared discount strategy is higher than its optimal wholesale price under the unsold-discount strategy, but lower than its optimal wholesale price under the wholesale price discount strategy. In addition, when the product cost is low and the discount ratio shared by consumers is high, both the manufacturer and the retailer can extract a higher profit by adopting the shared discount strategy. In this case, the retailer’s optimal order quantity increases with the discount ratio (allocated to consumers) and the unit discount amount. The boundaries of the implementation of shared discount strategy in supply chain companies are further explained with the arithmetic examples of actual data from companies.
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Received: 03 March 2021
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