Game theoretic analysis of the bargaining process over a long-term replenishment contract

J S Kim () and T C Kwak
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J S Kim: Hanyang University, Ansan Campus
T C Kwak: Hanyang University, Ansan Campus

Journal of the Operational Research Society, 2007, vol. 58, issue 6, 769-778

Abstract: Abstract This paper presents supplier–buyer models to describe the bargaining process between a supplier and a buyer over a long-term replenishment contract. Two different models are developed: one for the situation where the supplier has superior bargaining power over the buyer, and the other for the reverse situation. For each model, a method is derived that employs game theory-based analysis to determine the best strategy for each agent. A computational experiment is conducted to estimate the efficiency of the methods and to determine the economic implications of the results. The result indicates that each algorithm is very efficient compared to other strategies. We also verify that the solutions derived from each model are Nash equilibrium. Significantly improved outcomes are obtained for both agents by agreeing to the terms generated by the algorithms over the terms selected in the usual manner.

Keywords: supplier–buyer model; game theory; replenishment contract (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (2)

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DOI: 10.1057/palgrave.jors.2602183

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