Disposal cost sharing and bargaining for coordination and profit division in a three-echelon supply chain

This paper focuses on coordination and profit division in a manufacturer–distributer–retailer supply chain. The manufacturer supplies a perishable product to the retailer through the distributer in a single lot. The product deteriorates at a constant rate and it cannot be reworked. The retailer disposes of the product without any salvage value. The manufacturer and the distributer form a coalition that shares the retailer's disposal cost aiming at channel coordination. Further, to divide the channel surplus first the retailer bargains with the coalition and then the manufacturer and the distributer bargain within the coalition. This simple side-payment contract resolves channel conflict and the channel members' profits are win–win for the disposal cost share within a range. The proposed mechanisms for coordination and surplus division are illustrated by a numerical example.