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Competition for Procurement Contracts with Service Guarantees

Author

Listed:
  • Fernando Bernstein

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

  • Francis de Véricourt

    (European School of Management and Technology, 10178 Berlin, Germany)

Abstract

We consider a market with two suppliers and a set of buyers in search of procurement contracts with one of the suppliers. In particular, each buyer needs to process a certain volume of work, and each supplier's ability to process the customers' requests is constrained by a production capacity. The procurement contracts include guarantees that the products will be available when needed, and the buyers select a supplier based on their service delivery offers. The suppliers are modeled as make-to-stock queues and compete for the buyers' business. The main objective of this paper is to determine how the procurement contracts are established between buyers and suppliers. Because each buyer selects a single supplier to establish the sourcing relationship, the game fails to have a pure-strategy Nash equilibrium. Instead, an equilibrium is defined as the limit equilibrium of some discrete action games.

Suggested Citation

  • Fernando Bernstein & Francis de Véricourt, 2008. "Competition for Procurement Contracts with Service Guarantees," Operations Research, INFORMS, vol. 56(3), pages 562-575, June.
    • Handle: RePEc:inm:oropre:v:56:y:2008:i:3:p:562-575
    DOI: 10.1287/opre.1080.0540
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    References listed on IDEAS

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    Cited by:

    1. Ibtissem Ernez-Gahbiche & Khaled Hadjyoussef & Abdelwaheb Dogui & Zied Jemai, 2019. "Decentralized versus cooperative performances in a Nash game between a customer and two suppliers," Flexible Services and Manufacturing Journal, Springer, vol. 31(2), pages 279-307, June.
    2. Patra, Pradipta & Kumar, U. Dinesh & Nowicki, David R. & Randall, Wesley S., 2019. "Effective management of performance-based contracts for sustainment dominant systems," International Journal of Production Economics, Elsevier, vol. 208(C), pages 369-382.
    3. Anton, James J. & Brusco, Sandro & Lopomo, Giuseppe, 2010. "Split-award procurement auctions with uncertain scale economies: Theory and data," Games and Economic Behavior, Elsevier, vol. 69(1), pages 24-41, May.
    4. C. Gizem Korpeoglu & Ersin Körpeoğlu & Soo-Haeng Cho, 2020. "Supply Chain Competition: A Market Game Approach," Management Science, INFORMS, vol. 66(12), pages 5648-5664, December.
    5. Wang, Yulan & Wallace, Stein W. & Shen, Bin & Choi, Tsan-Ming, 2015. "Service supply chain management: A review of operational models," European Journal of Operational Research, Elsevier, vol. 247(3), pages 685-698.
    6. Mehmet Gümüş & Saibal Ray & Haresh Gurnani, 2012. "Supply-Side Story: Risks, Guarantees, Competition, and Information Asymmetry," Management Science, INFORMS, vol. 58(9), pages 1694-1714, September.

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