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2135. When should fresh-food suppliers embrace near-expired food commercialization?

Invited abstract in session WB-61: Retail Cooperation and Competition, stream Retail Operations.

Wednesday, 10:30-12:00
Room: S10 (building: 101)

Authors (first author is the speaker)

1. Zhengwei Lyu
School of Economics and Management, Beijing Jiaotong University

Abstract

Despite widespread discussion that near-expired food commercialization (NFC) may assist fresh-food suppliers to recover value from unsold inventory and enhance revenues, most suppliers remain skeptical about NFC, hesitant to abandon the potential of and concerned about eroding the higher-margins of fresh food sales. We develop in this paper a game-theoretic model to investigate the optimal strategy and optimal price-setting timing for the supplier that decides whether and how to commercialize its near-expired food. We find that increasing fresh food production shifts the supplier from non-commercialization to partial and ultimately full NFC. Under full NFC, the supplier with high bargaining power and high consumers’ willingness to pay may benefit from adopting clearance-priority pricing, which prioritizes setting of the retail price of the near-expired food. Conversely, the supplier with limited bargaining power and low consumers’ willingness to pay can gain an advantage by adopting fresh-priority pricing, which entails setting the retail price of the fresh food first. Under partial NFC, the supplier generally profits from clearance-priority pricing. However, given high disposal costs, even the seemingly strong supplier may choose fresh-priority pricing to avoid potentially significant losses from negotiation failure. We further analyze extended models to confirm the robustness of our findings. Our study not only contributes to the literature but also guides practice.

Keywords

Status: accepted

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