Two essays on procurement contract design
Abstract
In the first essay, we present a unified treatment of postponement strategies in combination of advance purchase contract, option contract, and recourse contract. Specifically, we consider an uncapacitated manufacturer who before uncertainty is resolved offers a monopolistic price-setting newsvendor opportunities to purchase in advance at a given price (advance purchase), and/or to pay to reserve capacity upfront for execution if needed (option); after market uncertainty is resolved, it further offers an expediting alternative for purchase (recourse). To address the linkage between these long and short term contracts, we endogenize the spot market price in the newsvendor model. We show that for the most general case that includes all three contracts with up to ten decision variables, it can be effectively solved by studying the functional form of a reduced optimization problem in one variable. Therefore, our technique could be adapted to analyze any subsumed postponement models with considerably sharper results. We further show how channel coordination and arbitrary profit allocation can be achieved through non-linear price scheme in the context of advance purchase, options, and recourse contracts. In addition, through numerical analysis, we measure the incremental gains from additional procurement alternatives, and classify the cases in which simpler procurement contracts perform well. The second essay investigates how a manufacturer can influence to its advantage the nature of retailer-competition by carefully selecting contracting elements when selling to retailers who compete in a consumer market: multiple ordering opportunities and the relative market power of retailers. Under a similar modeling framework as depicted in Essay I but with no option contract, we consider two retailers both sourcing from the same manufacturer and when both retailers order in advance, they may order sequentially or simultaneously. Upon receiving orders, the manufacturer produces and delivers them. After uncertainty is resolved, the retailers may trade stock with each other. In addition, they can purchase more from the manufacturer who has the quick-response production capability. We identify sufficient conditions for the existence of pure-strategy equilibria for all settings and obtain sufficient conditions for the advance purchase stage or recourse stage trading to occur. Moreover, through numerical studies, we find that the manufacturer prefers offering advance purchase opportunities to both retailers simultaneously if its production technology is more flexible in the sense that delayed production is not too costly. Otherwise, the manufacturer prefers letting the retailers order sequentially in advance. Offering only one retailer the advance purchase opportunity is always dominated by one of the other two cases.
Degree
Ph.D.
Advisors
Hu, Purdue University.
Subject Area
Management
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