Organizational structure of a global supply chain in the presence of a gray market: Information asymmetry and valuation difference

Bosung Kim and Kun Soo Park

International Journal of Production Economics, 2016, vol. 175, issue C, 71-80

Abstract: We consider a global supply chain of a multinational firm (MNF) with domestic and foreign markets in the presence of a gray marketer. In particular, we investigate the organizational structure of the MNF for pricing (centralization vs decentralization) when the foreign division of the MNF competes with the gray marketer. The foreign division has a private information on the market potential and customers have a valuation difference between the products sold by the foreign division and the gray marketer. In this situation, while centralized pricing may control the gray marketer’s activities, decentralized pricing may take advantage of a local manager’s private information, especially when a significant valuation difference of customers exists due to product or service differentiation. We analyze the trade-offs in the choice of organizational structure for pricing and the impact of information asymmetry and valuation difference on this choice. Also, we show that decentralization can be further improved by an incentive adjustment of profits between divisions, which has a potential to increase all divisions’ and MNF’s total profits over centralization.

Keywords: Global supply chain; Organizational structure; Gray market; Information asymmetry; Relative valuation (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:175:y:2016:i:c:p:71-80

DOI: 10.1016/j.ijpe.2016.02.008

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