Strategic Customer Behavior and the Benefit of Decentralization

Xuanming Su () and Fuqiang Zhang ()
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Xuanming Su: University of California, Berkeley
Fuqiang Zhang: Washington University in St. Louis

Chapter Chapter 7 in Consumer-Driven Demand and Operations Management Models, 2009, pp 177-201 from Springer

Abstract: Abstract In the operations management literature, decentralization is often associated with the double marginalization problem. However, in this chapter, we review several existing papers that demonstrate how decentralization can be beneficial to supply chain performance. A key premise in this literature is that consumers are strategic: They rationally anticipate and respond to future market conditions. We consider two broad classes of products, durable goods and perishable goods. In both cases, when facing strategic consumers, firms are typically better off if they can commit to future actions. When operating in a decentralized supply chain, contractual mechanisms can help firms achieve commitment power and increase profits. In this way, decentralized systems can outperform a centralized organization.

Keywords: strategic customer behavior; supply chain; decentralization; durable goods; newsvendor (search for similar items in EconPapers)
Date: 2009
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DOI: 10.1007/978-0-387-98026-3_7

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