Abstract: This research examines the interaction between the strategic transfer pricing commitment and downstream innovation in a supplier-manufacturer channel,and its influences on the optimal quoted delivery time and investment decisions.We model the channel operation in a make-to-order fashion and treat the demand as being linear in price and quoted delivery time.We use this analysis to show that the interaction between full commitment and full flexibility has nothing to do with the optimal quoted delivery time,while with respect to the supplier,the manufacturer and the supply chain as a whole,full commitment is always dominating full commitment.Further,we study the robustness of optimal profit contributions when some of the model parameters are mis-estimated.

Key words: delivery time-sensitive demand, innovation, transfer pricing, delivery time