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Leadership and Competition in Network Supply Chains

Author

Listed:
  • Pranab Majumder

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

  • Ashok Srinivasan

    (Marshall School of Business, University of Southern California, Los Angeles, California 90089)

Abstract

This paper considers network supply chains with price dependent demand by modelling them as large acyclic networks. Such large networks are common in the automobile and apparel industries. We develop a model to analyze the effect of these large-scale problems involving long sequences of contracts, and show that contract leadership, as well as leader position in the network, affect the performance of the entire supply chain. We generalize Spengler (Spengler, J. 1950. Vertical integration and anti-trust policy. J. Political Econom. 58 347-352) to a game on a "contract tree" for a particular supply chain and extend the concept of double marginalization so that it can be applied in the form of a transformation to each contract that is offered by one member to another in the "contract tree." We construct an algorithm to find the equilibrium solution, and derive the optimal location of the leader ("optimal" being the leader location that maximizes total supply chain profits). Our work formalizes many intuitive insights; for example, member profits are determined by systemwide rather than individual costs. Finally, we model Cournot competition between competing supply chains (both two heterogeneous trees and multiple identical trees) and show the effect of changes in leader position as well as cost structure on the equilibrium.

Suggested Citation

  • Pranab Majumder & Ashok Srinivasan, 2008. "Leadership and Competition in Network Supply Chains," Management Science, INFORMS, vol. 54(6), pages 1189-1204, June.
    • Handle: RePEc:inm:ormnsc:v:54:y:2008:i:6:p:1189-1204
    DOI: 10.1287/mnsc.1070.0752
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    References listed on IDEAS

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