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Strategic Customer Behavior and the Benefit of Decentralization

In: Consumer-Driven Demand and Operations Management Models

Author

Listed:
  • Xuanming Su

    (University of California, Berkeley)

  • Fuqiang Zhang

    (Washington University in St. Louis)

Abstract

In the operations management literature, decentralization is often associated with the double marginalization problem. However, in this chapter, we review several existing papers that demonstrate how decentralization can be beneficial to supply chain performance. A key premise in this literature is that consumers are strategic: They rationally anticipate and respond to future market conditions. We consider two broad classes of products, durable goods and perishable goods. In both cases, when facing strategic consumers, firms are typically better off if they can commit to future actions. When operating in a decentralized supply chain, contractual mechanisms can help firms achieve commitment power and increase profits. In this way, decentralized systems can outperform a centralized organization.

Suggested Citation

  • Xuanming Su & Fuqiang Zhang, 2009. "Strategic Customer Behavior and the Benefit of Decentralization," International Series in Operations Research & Management Science, in: Christopher S. Tang & Serguei Netessine (ed.), Consumer-Driven Demand and Operations Management Models, edition 1, chapter 0, pages 177-201, Springer.
  • Handle: RePEc:spr:isochp:978-0-387-98026-3_7
    DOI: 10.1007/978-0-387-98026-3_7
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    Cited by:

    1. Andrei Bazhanov & Yuri Levin & Mikhail Nediak, 2019. "Resale Price Maintenance with Strategic Customers," Production and Operations Management, Production and Operations Management Society, vol. 28(3), pages 535-549, March.

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