Flexible procurement contracts for competing retailers

Jen Yi Chen, Maqbool Dada, Qiaohai Joice Hu

Research output: Contribution to journalArticlepeer-review

Abstract

We consider a manufacturer that offers one or both retailers opportunities to purchase in advance before uncertainty in market size is resolved. When the retailers order in advance, they may order simultaneously, or only one of them may order. Upon receiving orders, the manufacturer produces and delivers them. After uncertainty is resolved, the retailers may trade stock with each other. In addition, they may purchase more from the manufacturer. We identify sufficient conditions for the existence of pure-strategy equilibria and obtain sufficient conditions for advance stage procurement and recourse stage trading to occur. These structural properties are used in a numerical study that sheds insights into the manufacturer's and retailers’ procurement contract design preferences and how these preferences are affected by production cost structure and demand variability.

Original languageEnglish (US)
Pages (from-to)130-142
Number of pages13
JournalEuropean Journal of Operational Research
Volume259
Issue number1
DOIs
StatePublished - May 16 2017

Keywords

  • Game theory
  • Inventory
  • Pricing
  • Supply chain management

ASJC Scopus subject areas

  • Computer Science(all)
  • Modeling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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