Supply diversification with isoelastic demand

Tao Li, Suresh Sethi and Jun Zhang

International Journal of Production Economics, 2014, vol. 157, issue C, 2-6

Abstract: We study a firm׳s sourcing strategy when facing two unreliable suppliers and a price-dependent isoelastic demand. At optimality, the firm always orders at least from the low-cost supplier. The firm also orders from the high-cost supplier if and only if the effective purchase cost from the low-cost supplier is greater than the actual purchase cost from the high-cost supplier. We also find that when the firm orders from both suppliers, the total order quantity decreases as the correlation between the suppliers׳ capacities increases.

Keywords: Supply diversification; Supply uncertainty; Isoelastic demand (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:157:y:2014:i:c:p:2-6

DOI: 10.1016/j.ijpe.2014.07.014

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