IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v53y2007i8p1249-1268.html
   My bibliography  Save this article

The Price of Anarchy in Supply Chains: Quantifying the Efficiency of Price-Only Contracts

Author

Listed:
  • Georgia Perakis

    () (Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139)

  • Guillaume Roels

    () (Anderson School of Management, University of California, Los Angeles, California 90095)

Abstract

In this paper, we quantify the efficiency of decentralized supply chains that use price-only contracts. With a price-only contract, a buyer and a seller agree only on a constant transaction price, without specifying the amount that will be transferred. It is well known that these contracts do not provide incentives to the parties to coordinate their inventory/capacity decisions. We measure efficiency with the price of anarchy (PoA), defined as the largest ratio of profits between the integrated supply chain (that is, fully coordinated) and the decentralized supply chain. We characterize the efficiency of various supply chain configurations: push or pull inventory positioning, two or more stages, serial or assembly systems, single or multiple competing suppliers, and single or multiple competing retailers.

Suggested Citation

  • 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.
  • Handle: RePEc:inm:ormnsc:v:53:y:2007:i:8:p:1249-1268
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.1060.0656
    Download Restriction: no

    References listed on IDEAS

    as
    1. 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.
    2. Fernando Bernstein & Awi Federgruen, 2005. "Decentralized Supply Chains with Competing Retailers Under Demand Uncertainty," Management Science, INFORMS, vol. 51(1), pages 18-29, January.
    3. Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 1-26.
    4. 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.
    5. Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, II: Applications," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 27-41.
    6. 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.
    7. 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.
    8. Fernando Bernstein & Gregory A. DeCroix, 2004. "Decentralized Pricing and Capacity Decisions in a Multitier System with Modular Assembly," Management Science, INFORMS, vol. 50(9), pages 1293-1308, September.
    9. Yunzeng Wang & Yigal Gerchak, 2003. "Capacity Games in Assembly Systems with Uncertain Demand," Manufacturing & Service Operations Management, INFORMS, vol. 5(3), pages 252-267, January.
    10. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347-347.
    11. Frank Chen & Zvi Drezner & Jennifer K. Ryan & David Simchi-Levi, 2000. "Quantifying the Bullwhip Effect in a Simple Supply Chain: The Impact of Forecasting, Lead Times, and Information," Management Science, INFORMS, vol. 46(3), pages 436-443, March.
    12. Bryant, John, 1980. "Competitive Equilibrium with Price Setting Firms and Stochastic Demand," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(3), pages 619-626, October.
    13. Ravi Anupindi & Yehuda Bassok, 1999. "Centralization of Stocks: Retailers vs. Manufacturer," Management Science, INFORMS, vol. 45(2), pages 178-191, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Parilina, Elena & Sedakov, Artem & Zaccour, Georges, 2017. "Price of anarchy in a linear-state stochastic dynamic game," European Journal of Operational Research, Elsevier, vol. 258(2), pages 790-800.
    2. Liu, Tian-Liang & Chen, Jian & Huang, Hai-Jun, 2011. "Existence and efficiency of oligopoly equilibrium under toll and capacity competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(6), pages 908-919.
    3. Mobini, Z. & van den Heuvel, W. & Wagelmans, A.P.M., 2014. "Designing multi-period supply contracts in a two-echelon supply chain with asymmetric information," Econometric Institute Research Papers EI2014-28, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    4. Chakravarty, A. & Mild, A. & Taudes, A., 2013. "Bundling decisions in supply chains," European Journal of Operational Research, Elsevier, vol. 231(3), pages 617-630.
    5. repec:spr:annopr:v:240:y:2016:i:2:d:10.1007_s10479-013-1505-2 is not listed on IDEAS
    6. Halati, Abolhassan & He, Yuanjie, 2010. "Analysis of supply chains with quantity based fixed incentives," European Journal of Operational Research, Elsevier, vol. 202(1), pages 214-222, April.
    7. Mümin Kurtuluş & Sezer Ülkü & Beril L. Toktay, 2012. "The Value of Collaborative Forecasting in Supply Chains," Manufacturing & Service Operations Management, INFORMS, vol. 14(1), pages 82-98, January.
    8. repec:spr:annopr:v:257:y:2017:i:1:d:10.1007_s10479-014-1689-0 is not listed on IDEAS
    9. El Ouardighi, Fouad, 2014. "Supply quality management with optimal wholesale price and revenue sharing contracts: A two-stage game approach," International Journal of Production Economics, Elsevier, vol. 156(C), pages 260-268.
    10. Miao, Zhaowei & Fu, Ke & Xia, Zhiqiang & Wang, Yu, 2017. "Models for closed-loop supply chain with trade-ins," Omega, Elsevier, vol. 66(PB), pages 308-326.
    11. repec:eee:jomega:v:76:y:2018:i:c:p:137-159 is not listed on IDEAS
    12. Budde, Maximilian & Minner, Stefan, 2014. "First- and second-price sealed-bid auctions applied to push and pull supply contracts," European Journal of Operational Research, Elsevier, vol. 237(1), pages 370-382.
    13. Sun, Jiong & Debo, Laurens, 2014. "Sustaining long-term supply chain partnerships using price-only contracts," European Journal of Operational Research, Elsevier, vol. 233(3), pages 557-565.
    14. Kovács, András & Egri, Péter & Kis, Tamás & Váncza, József, 2013. "Inventory control in supply chains: Alternative approaches to a two-stage lot-sizing problem," International Journal of Production Economics, Elsevier, vol. 143(2), pages 385-394.
    15. Geunes, Joseph & Romeijn, H. Edwin & van den Heuvel, Wilco, 2016. "Improving the efficiency of decentralized supply chains with fixed ordering costs," European Journal of Operational Research, Elsevier, vol. 252(3), pages 815-828.
    16. repec:kap:theord:v:82:y:2017:i:4:d:10.1007_s11238-016-9579-3 is not listed on IDEAS
    17. Marc Bollecker & Wilfrid Azan, 2008. "Les frontières de la recherche en contrôle de gestion : une analyse des cadres théoriques mobilisés," Post-Print halshs-00522395, HAL.
    18. Guillaume Roels & Uday S. Karmarkar & Scott Carr, 2010. "Contracting for Collaborative Services," Management Science, INFORMS, vol. 56(5), pages 849-863, May.
    19. Flip Klijn & Marc Vorsatz, 2017. "Outsourcing with identical suppliers and shortest-first policy: a laboratory experiment," Theory and Decision, Springer, vol. 82(4), pages 597-615, April.
    20. Wang, Xiuli & Zhu, Qianqian & Cheng, T.C.E., 2015. "Subcontracting price schemes for order acceptance and scheduling," Omega, Elsevier, vol. 54(C), pages 1-10.
    21. Martinez de Albeniz, Victor & Roels, Guillaume, 2007. "Competing for shelf space," IESE Research Papers D/717, IESE Business School.
    22. Ye, Yu-Sen & Ma, Zu-Jun & Dai, Ying, 2016. "The price of anarchy in competitive reverse supply chains with quality-dependent price-only contracts," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 89(C), pages 86-107.
    23. Adida, Elodie & Ratisoontorn, Nantaporn, 2011. "Consignment contracts with retail competition," European Journal of Operational Research, Elsevier, vol. 215(1), pages 136-148, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:53:y:2007:i:8:p:1249-1268. 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: (Mirko Janc). General contact details of provider: http://edirc.repec.org/data/inforea.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.