Sustaining long-term supply chain partnerships using price-only contracts
In this paper, we study how an informal, long-term relationship between a manufacturer and a retailer performs in turbulent market environments characterized by uncertain demand. We show that the long-term partnership based on repeated interaction is sustainable under price-only contracts when the supply chain partners are sufficiently patient. That is, the channel can be coordinated over a long time horizon when the factor whereby the members discount the future value of this trusting relationship is sufficiently high. Second, above the minimum discount factor, a range of wholesale prices exists that can sustain the long-term partnership, and there are different possible profit divisions between the two players. Third, when the market is turbulent, i.e., either the expected demand or the demand variance changes from period to period according to a probabilistic law, it is typically less possible to sustain the long-term partnership in a booming market or in a market with low demand variability. Finally, obtaining more information about future market fluctuation may not help the supply chain to sustain the long-term partnership, due to partners’ strategic considerations. With the availability of the market signal, total supply chain profits increase, but the retailer may even be worse-off.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 233 (2014)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/eor|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pan, Chenjun & Kinsey, Jean D., 2002. "The Supply Chain Of Pork: U.S. And China," Working Papers 14300, University of Minnesota, The Food Industry Center.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, July.
- Jean-Jacques Laffont & Jean Tirole, 1991.
"The Politics of Government Decision-Making: A Theory of Regulatory Capture,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 106(4), pages 1089-1127.
- Jean-Jacques Laffont & Jean Tirole, 1988. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," Working papers 506, Massachusetts Institute of Technology (MIT), Department of Economics.
- Jean-Jacques LAFFONT & Jean TIROLE, 1990. "The Politics of Government Decision-Making : a Theory of Regulatory Capture," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9004, Université de Lausanne, Faculté des HEC, DEEP.
- Dawn Barnes-Schuster & Yehuda Bassok & Ravi Anupindi, 2002. "Coordination and Flexibility in Supply Contracts with Options," Manufacturing & Service Operations Management, INFORMS, vol. 4(3), pages 171-207, May.
- Gérard P. Cachon & Martin A. Lariviere, 2001. "Contracting to Assure Supply: How to Share Demand Forecasts in a Supply Chain," Management Science, INFORMS, vol. 47(5), pages 629-646, May.
- Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, July.
- Slikker, Marco & Fransoo, Jan & Wouters, Marc, 2005. "Cooperation between multiple news-vendors with transshipments," European Journal of Operational Research, Elsevier, vol. 167(2), pages 370-380, December.
- James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 1-12.
- Gérard P. Cachon & A. Gürhan Kök, 2010. "Competing Manufacturers in a Retail Supply Chain: On Contractual Form and Coordination," Management Science, INFORMS, vol. 56(3), pages 571-589, March.
- Nagarajan, Mahesh & Sosic, Greys, 2008. "Game-theoretic analysis of cooperation among supply chain agents: Review and extensions," European Journal of Operational Research, Elsevier, vol. 187(3), pages 719-745, June.
- Georgia Perakis & Guillaume Roels, 2007. "The Price of Anarchy in Supply Chains: Quantifying the Efficiency of Price-Only Contracts," Management Science, INFORMS, vol. 53(8), pages 1249-1268, August.
- Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347-347.
- Fernando Bernstein & Awi Federgruen, 2007. "Coordination Mechanisms for Supply Chains Under Price and Service Competition," Manufacturing & Service Operations Management, INFORMS, vol. 9(3), pages 242-262, January.
- Xuanming Su, 2009. "Consumer Returns Policies and Supply Chain Performance," Manufacturing & Service Operations Management, INFORMS, vol. 11(4), pages 595-612, March.
- Charles J. Corbett & Deming Zhou & Christopher S. Tang, 2004. "Designing Supply Contracts: Contract Type and Information Asymmetry," Management Science, INFORMS, vol. 50(4), pages 550-559, April.
- Jun Zhang, 2005. "Transshipment and Its Impact on Supply Chain Members' Performance," Management Science, INFORMS, vol. 51(10), pages 1534-1539, October.
- Li Jiang & Yunzeng Wang, 2010. "Supplier Competition in Decentralized Assembly Systems with Price-Sensitive and Uncertain Demand," Manufacturing & Service Operations Management, INFORMS, vol. 12(1), pages 93-101, January.
- Taylor, Curtis R & Wiggins, Steven N, 1997. "Competition or Compensation: Supplier Incentives under the American and Japanese Subcontracting Systems," American Economic Review, American Economic Association, vol. 87(4), pages 598-618, September.
- Martinez de Albeniz, Victor & Simchi-Levi, David, 2007. "Improving supply chain efficiency through wholesale price renegotiation," IESE Research Papers D/721, IESE Business School.
- Terry A. Taylor & Erica L. Plambeck, 2007. "Supply Chain Relationships and Contracts: The Impact of Repeated Interaction on Capacity Investment and Procurement," Management Science, INFORMS, vol. 53(10), pages 1577-1593, October.
- Huang, Xiao & Sosic, Greys, 2010. "Repeated newsvendor game with transshipments under dual allocations," European Journal of Operational Research, Elsevier, vol. 204(2), pages 274-284, July.
- Harish Krishnan & Roman Kapuscinski & David A. Butz, 2010. "Quick Response and Retailer Effort," Management Science, INFORMS, vol. 56(6), pages 962-977, June.
- Harish Krishnan & Roman Kapuscinski & David A. Butz, 2004. "Coordinating Contracts for Decentralized Supply Chains with Retailer Promotional Effort," Management Science, INFORMS, vol. 50(1), pages 48-63, January.
- Leng, Mingming & Parlar, Mahmut, 2010. "Game-theoretic analyses of decentralized assembly supply chains: Non-cooperative equilibria vs. coordination with cost-sharing contracts," European Journal of Operational Research, Elsevier, vol. 204(1), pages 96-104, July.
- Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
- Xuanming Su & Fuqiang Zhang, 2008. "Strategic Customer Behavior, Commitment, and Supply Chain Performance," Management Science, INFORMS, vol. 54(10), pages 1759-1773, October.
- Martin A. Lariviere & Evan L. Porteus, 2001. "Selling to the Newsvendor: An Analysis of Price-Only Contracts," Manufacturing & Service Operations Management, INFORMS, vol. 3(4), pages 293-305, May.
- Lingxiu Dong & Kaijie Zhu, 2007. "Two-Wholesale-Price Contracts: Push, Pull, and Advance-Purchase Discount Contracts," Manufacturing & Service Operations Management, INFORMS, vol. 9(3), pages 291-311, January.
- Harish Krishnan & Ralph A. Winter, 2007. "Vertical Control of Price and Inventory," American Economic Review, American Economic Association, vol. 97(5), pages 1840-1857, December.
- Jan A. Van Mieghem, 1999. "Coordinating Investment, Production, and Subcontracting," Management Science, INFORMS, vol. 45(7), pages 954-971, July. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:233:y:2014:i:3:p:557-565. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.