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Competition and Cooperation in Decentralized Push and Pull Assembly Systems

Author

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  • Daniel Granot

    () (Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada)

  • Shuya Yin

    () (Paul Merage School of Business, University of California, Irvine, Irvine, California 92697)

Abstract

In this paper, we study a decentralized assembly system consisting of a single assembler who buys complementary components from independent suppliers under two contracting schemes: push and pull. In both schemes, the component suppliers are allowed to freely form coalitions (or alliances) among themselves to better coordinate their pricing or production decisions. We show that the sole driver of the inefficiency in a push system, which is due to horizontal decentralization of suppliers, is the number of alliances that were formed. Specifically, it is shown that in a push system, the assembler's profit, the total profit of all suppliers and the consumers' surplus are all decreasing in the number of coalitions, and are thus maximized when the grand coalition is formed. We further carry out a stability analysis of coalition structures to verify to what extent suppliers can reduce or eliminate the inefficiency due to their decentralization by forming alliances. We show that in a push system with more than two suppliers and a power demand distribution, myopic suppliers would act independently, resulting with a least efficient channel, which makes all channel members, as well as the end consumers, worse off. On the other hand, we prove that farsighted suppliers would form the grand coalition and thus be able to completely eliminate the inefficiency stemming from their decentralization. Finally, it is shown that, in contrast to a push system, in a pull system the suppliers can easily coordinate their production quantities to eliminate the inefficiency due to their decentralization.

Suggested Citation

  • Daniel Granot & Shuya Yin, 2008. "Competition and Cooperation in Decentralized Push and Pull Assembly Systems," Management Science, INFORMS, vol. 54(4), pages 733-747, April.
  • Handle: RePEc:inm:ormnsc:v:54:y:2008:i:4:p:733-747
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    File URL: http://dx.doi.org/10.1287/mnsc.1070.0792
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Shuya Yin, 2010. "Alliance Formation Among Perfectly Complementary Suppliers in a Price-Sensitive Assembly System," Manufacturing & Service Operations Management, INFORMS, vol. 12(3), pages 527-544, October.
    2. 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.
    3. Guan, Xu & Ma, Shihua & Yin, Zhe, 2015. "The impact of hybrid push–pull contract in a decentralized assembly system," Omega, Elsevier, vol. 50(C), pages 70-81.
    4. repec:spr:annopr:v:257:y:2017:i:1:d:10.1007_s10479-015-1966-6 is not listed on IDEAS
    5. Xiang Fang & Kut C. So & Yunzeng Wang, 2008. "Component Procurement Strategies in Decentralized Assemble-to-Order Systems with Time-Dependent Pricing," Management Science, INFORMS, vol. 54(12), pages 1997-2011, December.
    6. Zhu, Jing & Boyaci, Tamer & Ray, Saibal, 2016. "Effects of upstream and downstream mergers on supply chain profitability," European Journal of Operational Research, Elsevier, vol. 249(1), pages 131-143.
    7. repec:spr:annopr:v:257:y:2017:i:1:d:10.1007_s10479-015-1865-x is not listed on IDEAS
    8. 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.
    9. Palsule-Desai, Omkar D. & Tirupati, Devanath & Chandra, Pankaj, 2013. "Stability issues in supply chain networks: Implications for coordination mechanisms," International Journal of Production Economics, Elsevier, vol. 142(1), pages 179-193.
    10. Fiestras-Janeiro, M.G. & García-Jurado, I. & Meca, A. & Mosquera, M.A., 2011. "Cooperative game theory and inventory management," European Journal of Operational Research, Elsevier, vol. 210(3), pages 459-466, May.
    11. repec:wsi:apjorx:v:34:y:2017:i:01:n:s0217595917400036 is not listed on IDEAS
    12. repec:eee:jomega:v:75:y:2018:i:c:p:27-56 is not listed on IDEAS
    13. William S. Lovejoy, 2010. "Bargaining Chains," Management Science, INFORMS, vol. 56(12), pages 2282-2301, December.
    14. Zhaoqiong Qin, 2012. "Revenue-sharing in decentralised assembly systems," International Journal of Applied Management Science, Inderscience Enterprises Ltd, vol. 4(1), pages 80-90.

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