This paper attempts to model the profitability of a secondary market, in a newsvendor setting, to a profit-maximizing manufacturer, who is offering to the retailer a buyback policy for the unsold merchandise left at the end of the selling season. With a buyback agreement, the manufacturer shares the risks of demand uncertainty, thus inducing the buyer to place larger orders. The manufacturer's risk is mitigated to some extent by the availability of an extra market to dispose off the unsold merchandise. Both parties are risk-neutral profit-maximizers and both have the same information about the final demand for the product and its uncertainty. The manufacturer's decision is to arrive at an ...

<0, since p [right arrow] [p.sub.0], as v [right arrow] w, for multiplicative error), to encourage the end-customer to purchase more from the retailer. Alternatively, for additive errors, observe that [p'.sub.v]><0), for additive (multiplicative) errors. The changes occur in the manufacturer policies, where the emphasis is on larger buyback prices (i.e., [y'.sub.v]>

<[w.sub.0] 
Buyback policy (y)  y><[w.sub.0] 
Buyback policy (y)  y><[w.sub.0] 
Buyback policy (y)  y>

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