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Bargaining Chains

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  • William S. Lovejoy

    (Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

Abstract

We consider a firm that designs a new product and wishes to bring it to market but does not have ownership or control over all of the resources required to make that happen. The firm must select and contract with one of several possible tier 1 suppliers for necessary inputs, who do the same with their (tier 2) suppliers, etc. This general situation is common in industry. We assume tier-wise negotiations, sole sourcing within each tier, complete local information, and horizontal competition. We develop a bargaining-based solution to the negotiations between two adjacent multifirm tiers and show its consistency with familiar solution concepts from the theories of bargaining and cooperative games. We then link up multiple bargaining modules to generate chainwide predictions for efficiency and profitability in supply chains with an arbitrary number of tiers and an arbitrary number of firms per tier. We investigate the implications of the results for investments in process improvements or supplier development.

Suggested Citation

  • William S. Lovejoy, 2010. "Bargaining Chains," Management Science, INFORMS, vol. 56(12), pages 2282-2301, December.
    • Handle: RePEc:inm:ormnsc:v:56:y:2010:i:12:p:2282-2301
    DOI: 10.1287/mnsc.1100.1251
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    References listed on IDEAS

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    Cited by:

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    2. Lorentziadis, Panos L., 2014. "Pricing in a supply chain for auction bidding under information asymmetry," European Journal of Operational Research, Elsevier, vol. 237(3), pages 871-886.
    3. Li, Hongmin & Wang, Yimin & Yin, Rui & Kull, Thomas J. & Choi, Thomas Y., 2012. "Target pricing: Demand-side versus supply-side approaches," International Journal of Production Economics, Elsevier, vol. 136(1), pages 172-184.
    4. Kuo, Chia-Wei & Huang, Kwei-Long, 2012. "Dynamic pricing of limited inventories for multi-generation products," European Journal of Operational Research, Elsevier, vol. 217(2), pages 394-403.
    5. Zheng, Shiyuan & Negenborn, Rudy R., 2015. "Price negotiation between supplier and buyer under uncertainty with fixed demand and elastic demand," International Journal of Production Economics, Elsevier, vol. 167(C), pages 35-44.
    6. Herbert Dawid & Reinhold Decker & Thomas Hermann & Hermann Jahnke & Wilhelm Klat & Rolf König & Christian Stummer, 2017. "Management science in the era of smart consumer products: challenges and research perspectives," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 25(1), pages 203-230, March.

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