Abstract: The problem of joint procurement decision and pricing for a retailer in a single period setting is addressed. The retailer creates a procurement contract specifying payment for possible purchase quantity. Then, bidding invitation is issued in a reverse auction way. The won supplier has the right to make the decision about the quantity to be produced and delivered. Meanwhile, the retailer decides the price simultaneously to maximize the expected profit. With the assumption that the stochastic demand is a product function, under some relatively mild conditions, it is shown that the retailers expected revenue (not including the procurement cost) is a concave function of the purchased quantity, leading to an optimal ordering and pricing decision for the retailer. Especially, analytical expressions for purchase quantity and expected profit under normal demand distribution for the retailer are obtained. Numerical analyses are made and results show that the retailer gets more expected profit when the number of suppliers participating in the auction increase or the suppliers marginal costs are more diverse.

Key words: procurement, reverse auction, pricing, newsvendor model