The Strategic Benefit of Request for Proposal/Quotation

Leon Yang Chu (), Ying Rong () and Huan Zheng ()
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Leon Yang Chu: Marshall School of Business, University of Southern California, Los Angeles, California 90089; Cheung Kong Graduate School of Business, 201107 Shanghai, China
Ying Rong: Antai College of Economics and Management, Shanghai Jiaotong University, 200052 Shanghai, China
Huan Zheng: Antai College of Economics and Management, Shanghai Jiaotong University, 200052 Shanghai, China

Operations Research, 2022, vol. 70, issue 3, 1410-1427

Abstract: We study how the procurement process may help a buyer reduce purchasing costs under a dual-sourcing setting. First, we analyze the equilibrium outcomes when the buyer simultaneously or sequentially bilaterally negotiates with the suppliers. We establish coordination results and characterize the buyer’s maximum equilibrium profit under such bilateral bargaining settings. Moreover, we show that the buyer can benefit from a request for proposal/quotation (RFx) stage that precedes the negotiation stage when the suppliers are imperfect substitutes. Specifically, by endogenizing the sequence of negotiations via the offers tendered in the RFx stage, the buyer’s equilibrium profit with an RFx is (weakly) higher than his or her maximum equilibrium profit without an RFx. Furthermore, under a complete information setting, the buyer accepts both offers generated in the RFx stage and additional negotiation needs not to be carried out in equilibrium. Our insights extend to a random demand setting, in which the buyer first negotiates contracts with the suppliers and then decides order quantities after demand realization.

Keywords: Special Issue: Mathematical Models of Individual and Group Decision Making in Operations Research (in honor of Kenneth Arrow); bilateral bargaining; request for proposal; request for quotation; sourcing strategy; procurement processing (search for similar items in EconPapers)
Date: 2022
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