Supply Chain Competition: A Market Game Approach

C. Gizem Korpeoglu (), Ersin Körpeoğlu () and Soo-Haeng Cho ()
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C. Gizem Korpeoglu: Eindhoven University of Technology, 5612 AZ Eindhoven, Netherlands
Ersin Körpeoğlu: School of Management, University College London, London E14 5AA, United Kingdom
Soo-Haeng Cho: Tepper School of Business, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213

Management Science, 2020, vol. 66, issue 12, 5648-5664

Abstract: We study supply chains where multiple suppliers sell to multiple retailers through a wholesale market. In practice, we often observe that both suppliers and retailers tend to influence the wholesale market price that retailers pay to suppliers. However, existing models of supply chain competition do not capture retailers’ influence on the wholesale price (i.e., buyer power) and show that the wholesale price and the order quantity per retailer do not change with the number of retailers. To overcome this limitation, we develop a competition model based on the market game mechanism in which the wholesale price is determined based on both suppliers’ and retailers’ decisions. When taking into account retailers’ buyer power, we obtain the result that is consistent with the observed practice: As the number of retailers increases, each retailer’s buyer power decreases, and each retailer is willing to pay more for her order, so the wholesale price increases. In this case, supply chain expansion to include more retailers (or suppliers) turns out to be more beneficial in terms of supply chain efficiency than what the prior literature shows without considering buyer power. Finally, we analyze the integration of two local supply chains and show that although the profit of the integrated supply chain is greater than the sum of total profits of local supply chains, integration may reduce the total profit of firms in a retailer-oriented supply chain that has more retailers than suppliers.

Date: 2020
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Citations: View citations in EconPapers (12)

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