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Price negotiation under uncertainty

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  • Moon, Yongma
  • Yao, Tao
  • Park, Sungsoon
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    Abstract

    This paper examines supply contract negotiation when buyer's revenue and seller's cost are uncertain. In these circumstances, both the seller and the buyer have an option to determine when to sell and buy, which may influence negotiation outcomes. Thus, we developed a bilateral negotiation model to derive the optimal selling (buying) rule considering the option. Our results show that the options of waiting to sell and to buy (1) narrow the traditional zone of possible agreement and (2) lower the probability of negotiation agreement. It is also shown that impasses can occur due to uncertainty, even when a purchase price is lower than the buyer's future revenue and higher than the seller's future cost.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 134 (2011)
    Issue (Month): 2 (December)
    Pages: 413-423

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    Handle: RePEc:eee:proeco:v:134:y:2011:i:2:p:413-423

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    Web page: http://www.elsevier.com/locate/ijpe

    Related research

    Keywords: Supply contract Real options Group decisions and negotiation Uncertainty modeling;

    References

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    Cited by:
    1. Jiang, Yuanchun & Shang, Jennifer & Liu, Yezheng, 2013. "Optimizing shipping-fee schedules to maximize e-tailer profits," International Journal of Production Economics, Elsevier, vol. 146(2), pages 634-645.

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