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Organizational structure of a global supply chain in the presence of a gray market: Information asymmetry and valuation difference

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  • Kim, Bosung
  • Park, Kun Soo

Abstract

We consider a global supply chain of a multinational firm (MNF) with domestic and foreign markets in the presence of a gray marketer. In particular, we investigate the organizational structure of the MNF for pricing (centralization vs decentralization) when the foreign division of the MNF competes with the gray marketer. The foreign division has a private information on the market potential and customers have a valuation difference between the products sold by the foreign division and the gray marketer. In this situation, while centralized pricing may control the gray marketer’s activities, decentralized pricing may take advantage of a local manager’s private information, especially when a significant valuation difference of customers exists due to product or service differentiation. We analyze the trade-offs in the choice of organizational structure for pricing and the impact of information asymmetry and valuation difference on this choice. Also, we show that decentralization can be further improved by an incentive adjustment of profits between divisions, which has a potential to increase all divisions’ and MNF’s total profits over centralization.

Suggested Citation

  • Kim, Bosung & Park, Kun Soo, 2016. "Organizational structure of a global supply chain in the presence of a gray market: Information asymmetry and valuation difference," International Journal of Production Economics, Elsevier, vol. 175(C), pages 71-80.
    • Handle: RePEc:eee:proeco:v:175:y:2016:i:c:p:71-80
    DOI: 10.1016/j.ijpe.2016.02.008
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    3. Wang, Yingjia & Lin, Jiaxin & Choi, Tsan-Ming, 2020. "Gray market and counterfeiting in supply chains: A review of the operations literature and implications to luxury industries," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 133(C).
    4. Huang, Hongfu & He, Yong & Chen, Jing, 2019. "Competitive strategies and quality to counter parallel importation in global market," Omega, Elsevier, vol. 86(C), pages 173-197.
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    8. Giorgio Gnecco & Berna Tuncay & Fabio Pammolli, 2018. "A Comparison of Game-Theoretic Models for Parallel Trade," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 20(03), pages 1-57, September.
    9. Li, Hai & Qing, Qiankai & Wang, Juan & Hong, Xianpei, 2021. "An analysis of technology licensing and parallel importation under different market structures," European Journal of Operational Research, Elsevier, vol. 289(1), pages 132-143.
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    11. Huang, Hongfu & He, Yong & Chen, Jing, 2020. "Cross-market selling channel strategies in an international luxury brand's supply chain with gray markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 144(C).

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