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aligning incentives in supply chains buyback contract one way to align incentives in supply chains so that the total supply chain profit is maximized is by using buyback contract this is one of the possible solutions that allows us to solve the problem of double marginalization if you recall this was the problem were a retailer maximizes its own profit but at the same time reduces the total supply chain profit because it doesnt recognize the true cost of the unit so here in the buy back contract remain recall that we will assume we have a supplier that produces at some cost and then sells to the retailer at the wholesale price and then retailer in turn sells at a price and that happens during the season so its a seasonal product and there is a salvage value that the retailer gets at the end of the season so the buyback contract will assume the following the supplier will buy from the retailer left over units at a new price called the buyback price additionally the retailer will have
