The common demand relates to the demand for products that complement each other. In other words, the demand for unsuitable power is not isolated, but takes into account the fact that other goods or services are essential to the usefulness of the good to the consumer. For example, buying a ticket for a football match in another city probably requires the purchase of a train, air or bus ticket. Goods that are the subject of a joint application are referred to as “complementary products.” The two-tier supply chain is modelled under uncertain and price-dependent demand. An increase in the price of one leads to a drop in demand both and vice versa. For example, if the supply of gasoline remains unchanged, higher car prices will lead to lower demand, coupled with gasoline demand. Thus, the price will stand out to a point where the marginal benefit of a product is equal to its marginal cost of production and where the price or demand of one product will affect the price or demand of the other in the manner described in Figures 1 and 2. Using an example, we illustrate the case of the products, feathers and inks required in common: we consider a problem of coordination in the context of option contracts in a two-tier supply chain where the retail price of the product, the option price, the option price and the amount of order are optimized. Market demand is random and sensitive to the retail price of products. Our analyses take into account two types of contracts.
One of them is a conventional option contract in which the supplier determines the option and exercise price and the selling price of the product. Two cases are examined with respect to supplier decisions: (1) The supplier has the option price as a decision variable and (2) the option price and the exercise price of the options as decision variables. The other type of contract is an option contract with a common price mechanism, for which two players in the supply chain determine a relationship between the exercise price of the options and the retail price of the products. For both types of contracts, we are developing a Newsvendor model to study the impact of common pricing on supply chain coordination and decision-making. We use sequential procedures to determine the optimal choices for players in the supply chain, including the amount of order and retail price of the distributor and the option price set by the supplier. We then show that a conventional option contract cannot coordinate the supply chain alone. We propose the introduction of common prices for optional contacts and prove that this would both benefit the players in the supply chain and encourage them to coordinate voluntarily. Common products are of two types: first, the proportions of which cannot be varied; and second, the proportions of which may vary. Products such as wheat and straw or cotton and cotton seeds fall into the first category.
If there are bumpers of wheat or cotton harvest, the supply of straw seeds or cotton is automatically increased. But it is difficult to separate the production costs of these products. Competition is a term used to describe a situation in which more than one product can be manufactured from the same factors of production. For example, a farmer could use his land and work to produce two different crops — in the production of one crop, the factors used cannot be used for the production of the other crop. Figure 2 (A) shows a decline in demand for OQ to OQ1 vehicles, with the resulting decline in OQ1 gasoline demand at OQ1, as shown in Sign (B). Both figures also show the fall in the prices of cars and gasoline from the OP1 to OP1. The evolution of these prices depends on the degree of elasticity of demand for the products, associated with the degree of scarcity or fullness. Similarly, it can determine the marginal cost of sheep when it needs more sheep meat than wool.
The price of each product is thus determined by the equality of marginal costs and marginal benefits of each product.