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Price and Delivery Logistics Competition in a Supply Chain

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Author Info

  • Albert Y. Ha

    ()
    (Department of Information and Systems Management, The Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong)

  • Lode Li

    ()
    (Yale School of Management, New Haven, Connecticut 06520)

  • Shu-Ming Ng

    ()
    (Department of Information and Systems Management, The Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong)

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    Abstract

    We consider a supply chain in which two suppliers compete for supply to a customer. Pricing and delivery-frequency decisions in the system are analyzed by two three-stage noncooperative games with different decision rights designated to the parties involved. The customer first sets the price (or delivery frequency) for each supplier. Then, the suppliers offer the delivery frequencies (or prices) simultaneously and independently. Finally, the customer determines how much demand to allocate to each of the suppliers. We show that delivery frequency, similar to delivery speed in time-based competition, can be a source of competitive advantage. It also allows firms that sell identical products to offer complementary services to the customer because she can lower her inventory with deliveries from more suppliers. In general, higher delivery frequencies lower the value of getting deliveries from the second supplier and therefore intensify price competition. Assuming the cost structures do not change and the suppliers are identical, we show that when the customer controls deliveries, she would strategically increase delivery frequencies to lower prices. The distortion in delivery frequencies is larger and the overall performance of the supply chain is lower when the customer, not the suppliers, controls deliveries. Moreover, the customer is better off under delivery competition, while the suppliers are better off under price competition.

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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 49 (2003)
    Issue (Month): 9 (September)
    Pages: 1139-1153

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    Handle: RePEc:inm:ormnsc:v:49:y:2003:i:9:p:1139-1153

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    Related research

    Keywords: Pricing; Delivery; Logistics; Inventory; Just-in-Time; Supplier Management; Supply Chain Competition;

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    Cited by:
    1. Hsieh, Chung-Chi & Wu, Cheng-Han, 2009. "Coordinated decisions for substitutable products in a common retailer supply chain," European Journal of Operational Research, Elsevier, vol. 196(1), pages 273-288, July.
    2. Elahi, Ehsan, 2013. "Outsourcing through competition: What is the best competition parameter?," International Journal of Production Economics, Elsevier, vol. 144(1), pages 370-382.
    3. Afshin Mansouri, S. & Gallear, David & Askariazad, Mohammad H., 2012. "Decision support for build-to-order supply chain management through multiobjective optimization," International Journal of Production Economics, Elsevier, vol. 135(1), pages 24-36.
    4. Blanc, H.M. le & Cruijssen, F.C.A.M. & Fleuren, H.A. & Koster, M.B.M. de, 2004. "Factory Gate Pricing: An Analysis of the Dutch Retail Distribution," Discussion Paper, Tilburg University, Center for Economic Research 2004-35, Tilburg University, Center for Economic Research.
    5. Alexandre Reis Graeml & Jurandir Peinado & Marco Aurélio Kurrle & Joao Alberto Schaicoski, 2011. "Logistical performance: impact of the use of a logistical tool of self-assessment by first tier suppliers of the automotive industry," Brazilian Business Review, Fucape Business School, vol. 8(3), pages 01-19, July.
    6. Shah, Nilopa & Brueckner, Jan K., 2012. "Price and frequency competition in freight transportation," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(6), pages 938-953.
    7. le Blanc, H.M. & Cruijssen, F. & Fleuren, H.A. & de Koster, M.B.M., 2004. "Factory Gate Pricing: An Analysis of the Dutch Retail Distribution," ERIM Report Series Research in Management, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasm ERS-2004-023-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    8. Huang, Yeu-Shiang & Chen, Si-Hen & Ho, Jyh-Wen, 2013. "A study on pricing and delivery strategy for e-retailing systems," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 59(C), pages 71-84.
    9. Farahani, Reza Zanjirani & Rezapour, Shabnam & Drezner, Tammy & Fallah, Samira, 2014. "Competitive supply chain network design: An overview of classifications, models, solution techniques and applications," Omega, Elsevier, vol. 45(C), pages 92-118.
    10. Gunasekaran, Angappa & Ngai, Eric W.T., 2009. "Modeling and analysis of build-to-order supply chains," European Journal of Operational Research, Elsevier, vol. 195(2), pages 319-334, June.
    11. Transchel, Sandra & Minner, Stefan, 2011. "Economic lot-sizing and dynamic quantity competition," International Journal of Production Economics, Elsevier, vol. 133(1), pages 416-422, September.
    12. James Ang & Masao Fukushima & Fanwen Meng & Takahiro Noda & Jie Sun, 2013. "Establishing Nash equilibrium of the manufacturer–supplier game in supply chain management," Journal of Global Optimization, Springer, vol. 56(4), pages 1297-1312, August.

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