Two-part pricing contracts under competition: the South-to-North Water Transfer Project supply chain system in China

Abstract

This study analyzes the water supply chain system of the Eastern Route of the South-to-North Water Transfer Project in China. The article compares the impacts of competition intensity on profits of two water distributors and the water supply chain system under two-part pricing contracts versus wholesale price contracts. When the upstream water supplier offers two-part pricing contracts, the water quantity and expected profits of both distributors decrease as the competition intensity increases. The expected profits of the supply chain system decrease, but are greater than the profits under wholesale price contracts. The government can control fixed costs to balance the profits of suppliers and distributors.

Keywords:

• Two-part pricing contract
• quantity competition
• water supply chain
• system optimization and performance
• South-to-North Water Transfer Project

Acknowledgements

The authors would like to thank Laura McCann for helpful comments and assistance in proofreading. We are grateful for the constructive comments from the journal editors and two anonymous reviewers. The usual disclaimers apply.

Disclosure statement

No potential conflict of interest was reported by the authors.

Funding

This research was supported by the General Programme of Natural Science Foundation of China (grant numbers 71372140 and 71531003) and the Youth Project of Natural Science Foundation of China (grant number 71102055).