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Inventory, Speculation, and Sourcing Strategies in the Presence of Online Exchanges


  • Joseph M. Milner

    () (Joseph L. Rotman School of Management, University of Toronto, 105 St. George Street, Toronto, Ontario M5S 3E6, Canada)

  • Panos Kouvelis

    () (John M. Olin School of Business, Washington University, St. Louis, Missouri 63130)


We study how online business-to-business (B2B) exchanges affect buyer-supplier relationships where an exchange takes the role of a secondary market in which buyers (of the initial product) can trade excess inventory to address supply and demand imbalances. Over the last several years, B2B exchanges have attempted to provide supply for storable industrial goods with some degree of design specification (as opposed to undifferentiated commodities). Through this research, we elucidate some aspects of how speculative online exchanges with a small number of participants might behave and the impact they will have on the use of long-term contracts for supply. By endogenizing the evolution of spot prices in response to buyers' and their supplier's actions, we produce price fluctuations that exhibit significant autocorrelation in such markets. We show that participating buyers accrue network benefits as the number of participating firms increases through the inventory-pooling effects, resulting in reduced costs for them. However, a supplier acting strategically will counteract such benefits by restricting availability of goods to the spot market, sacrificing short-term spot-market revenue for long-term contract volume.

Suggested Citation

  • Joseph M. Milner & Panos Kouvelis, 2007. "Inventory, Speculation, and Sourcing Strategies in the Presence of Online Exchanges," Manufacturing & Service Operations Management, INFORMS, vol. 9(3), pages 312-331, July.
  • Handle: RePEc:inm:ormsom:v:9:y:2007:i:3:p:312-331

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    References listed on IDEAS

    1. Panagiotis Kouvelis & Genaro J. Gutierrez, 1997. "The Newsvendor Problem in a Global Market: Optimal Centralized and Decentralized Control Policies for a Two-Market Stochastic Inventory System," Management Science, INFORMS, vol. 43(5), pages 571-585, May.
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    Cited by:

    1. Chen, Jen-Yi & Dada, Maqbool & Hu, Qiaohai (Joice), 2017. "Flexible procurement contracts for competing retailers," European Journal of Operational Research, Elsevier, vol. 259(1), pages 130-142.
    2. Xing, Wei & Wang, Shouyang & Liu, Liming, 2012. "Optimal ordering and pricing strategies in the presence of a B2B spot market," European Journal of Operational Research, Elsevier, vol. 221(1), pages 87-98.
    3. Xu, Jinpeng & Feng, Gengzhong & Jiang, Wei & Wang, Shouyang, 2015. "Optimal procurement of long-term contracts in the presence of imperfect spot market," Omega, Elsevier, vol. 52(C), pages 42-52.
    4. Xing, Wei & Liu, Liming & Wang, Shouyang, 2014. "More than a second channel? Supply chain strategies in B2B spot markets," European Journal of Operational Research, Elsevier, vol. 239(3), pages 699-710.


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