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A Responsive-Pricing Retailer Sourcing from Competing Suppliers Facing Disruptions

Author

Listed:
  • Xi Shan

    (Department of Business Administration, Bemidji State University, Bemidji, Minnesota 56601)

  • Tao Li

    (Leavey School of Business, Santa Clara University, Santa Clara, California 95053)

  • Suresh P. Sethi

    (Naveen Jindal School of Management, University of Texas at Dallas, Richardson, Texas 75080)

Abstract

Problem definition : We study a problem of a retailer that orders from competing strategic suppliers subject to independent or correlated disruptions and responds by setting the retail price on delivery, called responsive pricing. The suppliers set their wholesale prices in a Nash game. Academic/practical relevance : Supplier disruption correlation exists for reasons such as product and service designs, geographic proximity, and common tier 2 suppliers. In practice, many retailers are able to set the product price after knowing the delivered quantity. Methodology : We model this problem as a Stackelberg–Nash game with the suppliers as the leaders and the retailer as the follower and obtain its equilibrium explicitly. We perform sensitivity analyses with respect to suppliers’ production costs, reliabilities, and their correlation. Results : We find, surprisingly, that an increase in the reliability of a supplier may, counter to our intuition, hurt it because of the competition between the suppliers selling to a responsive-pricing retailer. Furthermore, in contrast to the literature, we find that under responsive pricing, a high disruption correlation may benefit a supplier that has a cost advantage, and the total order quantity may increase in that correlation because of supplier competition. Managerial implications : This paper has important implications for unreliable suppliers because the way reliability and correlation influence their profits depends on the retailer’s pricing power and the competition intensity between the suppliers. With a responsive-pricing retailer, a supplier may not benefit from higher reliability but may benefit from a higher correlation. This suggests that a low-cost supplier serving a responsive-pricing retailer could add to its decision-making tools a new incentive of creating a positively correlated supply network by building plants in the geographic location of its competitor or sourcing from the same tier 2 supplier to obtain an increased correlation strategically.

Suggested Citation

  • Xi Shan & Tao Li & Suresh P. Sethi, 2022. "A Responsive-Pricing Retailer Sourcing from Competing Suppliers Facing Disruptions," Manufacturing & Service Operations Management, INFORMS, vol. 24(1), pages 196-213, January.
    • Handle: RePEc:inm:ormsom:v:24:y:2022:i:1:p:196-213
    DOI: 10.1287/msom.2020.0934
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    References listed on IDEAS

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    Cited by:

    1. John R. Birge & Agostino Capponi & Peng-Chu Chen, 2023. "Disruption and Rerouting in Supply Chain Networks," Operations Research, INFORMS, vol. 71(2), pages 750-767, March.
    2. Cui, Jie & Pan, Jingming & Song, Zhiyi, 2025. "Sourcing and supplying strategies under supply risk of critical components," European Journal of Operational Research, Elsevier, vol. 327(1), pages 136-147.
    3. Fang, Gang & Fang, Xiang & Ji, Qing-kai & Li, Jun, 2025. "Dual sourcing under quality improvement uncertainty," Omega, Elsevier, vol. 133(C).
    4. Yang, Rui & Feng, Lin & Zhang, Jianxiong & Song, Zhuzhu, 2025. "Conflicts and cooperation: New product development or co-development in a supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 197(C).
    5. Bao, Chunyu & Li, Min & Pei, Yiying, 2026. "Customer flow spillovers in retailers' short- and long-term decisions: Profitability and dynamic mechanisms," Journal of Retailing and Consumer Services, Elsevier, vol. 88(C).

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