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A Negotiation Model for Inducing Higher Service in a Distribution Channel

Author

Listed:
  • Ricardo Ernst

    (Georgetown University)

  • Jose Ignacio López-Sánchez

    (Complutense University of Madrid)

  • David Urbano

    (Autonomous University of Barcelona)

Abstract

This paper analyzes, in the context of negotiation, the problem of coordination and conflict resolution between the manufacturer (Seller) and the retailers (Buyers) for a two-tier inventory system. The retailers capture demand (from customers) and therefore are responsible for the level of service offered by the system. The larger the inventory that a retailer has of a particular product, the lower the probability of running out of stock and therefore, avoid the possibility of a lost sale for the manufacturer. A conflict arises (and therefore the negotiation process starts) when the manufacturer wants the retailer to increase the level of service while retailers are satisfied with the status quo. Using the Nash bargaining solution, we develop a theoretical framework that incorporates behavioral dimensions and predicts the outcome of “sharing” the profit. The results indicate the advantage of developing long term relationships among the members of the distribution channel to minimize the uncertainty and therefore the source of conflict.

Suggested Citation

  • Ricardo Ernst & Jose Ignacio López-Sánchez & David Urbano, 2009. "A Negotiation Model for Inducing Higher Service in a Distribution Channel," Group Decision and Negotiation, Springer, vol. 18(5), pages 499-517, September.
    • Handle: RePEc:spr:grdene:v:18:y:2009:i:5:d:10.1007_s10726-008-9139-5
    DOI: 10.1007/s10726-008-9139-5
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