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Price-Quoting Strategies of an Upstream Supplier

Author

Listed:
  • Bin Hu

    (Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599)

  • Damian R. Beil

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

  • Izak Duenyas

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

Abstract

This paper studies an upstream supplier who quotes prices for a key component to multiple sellers that compete for an end-buyer's indivisible contract. At most one of the supplier's quotes may result in downstream contracting and hence produce revenue for her. We characterize the supplier's optimal price-quoting strategies and show that she will use one of two possible types of strategies, with her choice depending on the sellers' profit potentials relative to their uncertainties: secure , whereby she will always have business; or risky , whereby she may not have business. Addressing potential fairness concerns, we also study price-quoting strategies in which all sellers receive equal quotes. Finally, we show that the supplier's optimal mechanism resembles auctioning a single quote among the sellers. This paper can assist upstream suppliers in their pricing decisions and provides general insights into multitier supply chains' pricing dynamics. This paper was accepted by Martin Lariviere, operations management.

Suggested Citation

  • Bin Hu & Damian R. Beil & Izak Duenyas, 2013. "Price-Quoting Strategies of an Upstream Supplier," Management Science, INFORMS, vol. 59(9), pages 2093-2110, September.
    • Handle: RePEc:inm:ormnsc:v:59:y:2013:i:9:p:2093-2110
    DOI: 10.1287/mnsc.1120.1697
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    References listed on IDEAS

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    Cited by:

    1. Lorentziadis, Panos L., 2016. "Optimal bidding in auctions from a game theory perspective," European Journal of Operational Research, Elsevier, vol. 248(2), pages 347-371.
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    3. Zhibin (Ben) Yang & Xinxin Hu & Haresh Gurnani & Huiqi Guan, 2018. "Multichannel Distribution Strategy: Selling to a Competing Buyer with Limited Supplier Capacity," Management Science, INFORMS, vol. 64(5), pages 2199-2218, May.
    4. Yan, Nina & Zhang, Yaping & Xu, Xun & Gao, Yongling, 2021. "Online finance with dual channels and bidirectional free-riding effect," International Journal of Production Economics, Elsevier, vol. 231(C).

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