Interaction Among Supply Chains: Consumers, Firms and Policymakers

Yuanchen Li, Purdue University

Abstract

This study explores the vertical relationships in the supply chain at three different levels, namely, firm-consumer interface, supplier-buyer interface, and firm-government interface. We provide a brief description of the results obtained for the specific problems considered in this study.The firm-consumer interface is examined in Chapter 2. We explore firms’ selling strategy when dynamically competing for a common stream of consumers. In the situation of pure price competition, a commonly studied case, it is known that the seller with a higher stock level can compete more effectively by forcing the seller with a lower stock level to sell out first and enjoy a monopoly power afterward. We show that when the sellers are open to price bargaining as a way of attracting buyers, the competition equilibrium can exhibit different outcomes. When the overall stock held by the sellers is limited, there is a good chance that both sellers deplete the inventories before the end of the selling season. In this case, an incoming buyer would prefer a high inventory seller, with whom he can bargain down the price. Interestingly, such a phenomenon only appears when the length of selling season is long enough. Thus, our study highlights the unique role of bargaining in consumer markets, as well as the importance of time horizon in characterizing equilibrium for dynamic games.The supplier-buyer interface is studied in Chapter 3. In recent years, an increasing number of studies have applied the Nash bargaining (NB) solution to study channel relationships. However, this solution concept builds on an unrealistic axiom of independence of irrelevant alternatives. We demonstrate that, indeed, the NB solution can produce unreasonable outcomes in vertical negotiations. For example, a supplier negotiating with a monopoly retailer can end up making a higher profit than the one negotiating with a retailer facing potential competitions. To address this issue, we examine the Kalai-Smorodinsky (KS) solution as an alternative. Our analysis suggests that in competing supply chains, the KS solution appropriately captures the negotiation power shift induced by the decision ownership, the negotiation sequence, the vertical relationship, the competition intensity, the contract contingency, and the contract type. This is the first time the KS solution concept is applied to supply chain negotiations.The firm-government interface is explored in Chapter 4. From the policymakers’ perspective, incentives firms actions toward increasing the product consumption for the needy group or increasing social welfare has a major influence in many supply chains. For example, agricultural products are subsidized by many governments. In this study, we analyze the design of government subsidy programs to induce socially improved firm decisions. We show that subsidizing on production input can lead to a more balanced distribution of market shares and firm profits than subsidizing on production output. Moreover, firms with efficient production technology prefer output subsidy, while those with inefficient production technology favor input subsidy.

Degree

Ph.D.

Advisors

Feng, Purdue University.

Subject Area

Agriculture|Management|Operations research

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