A joint approach for setting unit price and the length of the credit period for a seller when end demand is price sensitive

This paper considers the seller-buyer channel in which the end demand is price sensitive and the seller may offer trade credit to the buyer. The unit price seller charged by the seller and the length of the credit period offered by the seller to the buyer both influence the final demand for the product. Hence we consider both to be policy variables for the seller. We use the case of no credit as a benchmark in our analysis. The paper provides procedures for determining the seller's and the buyer's policies under non-cooperative as well as cooperative relationships. In the non-cooperative case, we determine for the seller the optimal unit price and the length of the credit period. For the cooperative structure, we provide a procedure for characterizing Pareto efficient solutions. (C) 2002 Elsevier Science B.V. All rights reserved.