Joint Mail-In Rebate Decisions in Supply Chains Under Demand Uncertainty

Abstract

We study the joint decisions of offering mail-in rebates (MIRs) in a single-manufacturer–single-retailer supply chain using a game theoretic framework. Either party can offer an MIR to the end consumer if it is in his best interest. The consumer demand is stochastic and depends on the product price and the amount of MIRs. When the retail price is exogenous, we show the existence of a unique Nash equilibrium under both additive and multiplicative demand functions and characterize it completely. We show that any of the following four scenarios can be the equilibrium: both parties offer MIR, only one party offers MIR, none offers MIR. When the retail price is a decision variable for the retailer and the rebate redemption rate increases with the amount of MIR, we once again prove the existence of a unique Nash equilibrium where both the retailer and the manufacturer offer MIRs. Using a numerical study, we show that the average post-purchase price of the product is higher not only than the perceived pre-purchase price but also than the newsvendor optimal price without an MIR. This implies that an MIR makes a product look cheaper while the consumers actually pay more on average.