Supply Chain Competition: A Market Game Approach

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. This paper was accepted by Charles Corbett, operations management.

The impact of tariffs and price premiums of locally manufactured products on global manufacturers' sourcing strategies

“…Hsu et al (2019) study an MNF's decision about whether to supply a rival in the retail market by taking into account tax disparities between countries and regulations on transfer pricing. Using a market game approach, Korpeoglu et al (2020) analyze the role of tariffs in supply chain competition, expansion, and integration. Departing from the approaches of the above studies, our work will contribute to the field by assessing the impact of tariffs on the sourcing decisions of a manufacturer with a global supply chain structure and sales in multiple markets.…”

Short of drugs? Call upon operations and supply chain management

“…There are several supply chain competition or operations economics models that do this (cf. Korpeoglu et al, 2020;Corbett and Karmarkar, 2001), but they include some assumptions that do not hold for medicine supply chains (e.g., demand is affected by price and indirectly by production quantities), analyze outcome variables other than availability, or study interventions/ decision variables that do not necessarily apply in the context of medicine supply chains. We therefore advocate that future researchers should develop models that capture 1) relevant interventions, 2) their impact on entry/exit decisions, and 3) the direct and indirect implications for supply chain risk.…”

“…It would be very helpful to have models that capture these decisions. Several general supply chain economics models are available (Corbett and Karmarkar, 2001;Korpeoglu et al, 2020), but they include some assumptions that do not hold for medicine supply chains. They also analyze outcome variables other than availability, or study interventions and decision variables that may not apply.…”

Dynamic Evolution of the Zinc-Nickel Battery Industry and Evidence from China

“…Research on Supply Chain Game. Korpeoglu et al [1] studied supply chains in which multiple suppliers sell to multiple retailers in a wholesale market. ey found that integration may reduce the total profit of companies in a retailer-oriented supply chain.…”