Price and Delivery Logistics Competition in a Supply Chain
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.
Volume (Year): 49 (2003)
Issue (Month): 9 (September)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
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.:
- So, Kut C. & Song, Jing-Sheng, 1998. "Price, delivery time guarantees and capacity selection," European Journal of Operational Research, Elsevier, vol. 111(1), pages 28-49, November.
- Z. Kevin Weng, 1995. "Channel Coordination and Quantity Discounts," Management Science, INFORMS, vol. 41(9), pages 1509-1522, September.
- Robert J. Dolan, 1987. "Quantity Discounts: Managerial Issues and Research Opportunities," Marketing Science, INFORMS, vol. 6(1), pages 1-22.
- Hau L. Lee & Meir J. Rosenblatt, 1986. "A Generalized Quantity Discount Pricing Model to Increase Supplier's Profits," Management Science, INFORMS, vol. 32(9), pages 1177-1185, September.
- Lode Li & Yew Sing Lee, 1994. "Pricing and Delivery-Time Performance in a Competitive Environment," Management Science, INFORMS, vol. 40(5), pages 633-646, May.
- Hau L. Lee & V. Padmanabhan & Seungjin Whang, 1997. "Information Distortion in a Supply Chain: The Bullwhip Effect," Management Science, INFORMS, vol. 43(4), pages 546-558, April.
- James P. Monahan, 1984. "A Quantity Discount Pricing Model to Increase Vendor Profits," Management Science, INFORMS, vol. 30(6), pages 720-726, June.
- Joseph Hall & Evan Porteus, 2000. "Customer Service Competition in Capacitated Systems," Manufacturing & Service Operations Management, INFORMS, vol. 2(2), pages 144-165, November.
- Charles J. Corbett & Xavier de Groote, 2000. "A Supplier's Optimal Quantity Discount Policy Under Asymmetric Information," Management Science, INFORMS, vol. 46(3), pages 444-450, March.
- Raymond Deneckere & James Peck, 1995.
"Competition Over Price and Service Rate When Demand is Stochastic: A Strategic Analysis,"
RAND Journal of Economics,
The RAND Corporation, vol. 26(1), pages 148-162, Spring.
- Raymond Deneckere & James Peck, 1992. "Competition over Price and Service Rate when Demand is Stochastic: A Strategic Analysis," Discussion Papers 990, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Gérard P. Cachon & Patrick T. Harker, 2002. "Competition and Outsourcing with Scale Economies," Management Science, INFORMS, vol. 48(10), pages 1314-1333, October.
- Ehud Kalai & Morton I. Kamien & Michael Rubinovitch, 1992. "Optimal Service Speeds in a Competitive Environment," Management Science, INFORMS, vol. 38(8), pages 1154-1163, August.
- Lode Li, 1992. "The Role of Inventory in Delivery-Time Competition," Management Science, INFORMS, vol. 38(2), pages 182-197, February.
- Reitman, David, 1991. "Endogenous Quality Differentiation in Congested Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 39(6), pages 621-647, December.
- Fangruo Chen & Awi Federgruen & Yu-Sheng Zheng, 2001. "Coordination Mechanisms for a Distribution System with One Supplier and Multiple Retailers," Management Science, INFORMS, vol. 47(5), pages 693-708, May.
- repec:inm:ormnsc:v:30:y:1984:i:12:p:1524-1539(2 is not listed on IDEAS Full references (including those not matched with items on IDEAS)