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Game theoretic analysis of the bargaining process over a long-term replenishment contract

Author

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  • J S Kim

    (Hanyang University, Ansan Campus)

  • T C Kwak

    (Hanyang University, Ansan Campus)

Abstract

This paper presents supplier–buyer models to describe the bargaining process between a supplier and a buyer over a long-term replenishment contract. Two different models are developed: one for the situation where the supplier has superior bargaining power over the buyer, and the other for the reverse situation. For each model, a method is derived that employs game theory-based analysis to determine the best strategy for each agent. A computational experiment is conducted to estimate the efficiency of the methods and to determine the economic implications of the results. The result indicates that each algorithm is very efficient compared to other strategies. We also verify that the solutions derived from each model are Nash equilibrium. Significantly improved outcomes are obtained for both agents by agreeing to the terms generated by the algorithms over the terms selected in the usual manner.

Suggested Citation

  • J S Kim & T C Kwak, 2007. "Game theoretic analysis of the bargaining process over a long-term replenishment contract," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 58(6), pages 769-778, June.
    • Handle: RePEc:pal:jorsoc:v:58:y:2007:i:6:d:10.1057_palgrave.jors.2602183
    DOI: 10.1057/palgrave.jors.2602183
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    References listed on IDEAS

    as
    1. Jong Soo Kim & K Y Shin & S E Ahn, 2003. "A multiple replenishment contract with ARIMA demand processes," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 54(11), pages 1189-1197, November.
    2. Kamran Moinzadeh & Steven Nahmias, 2000. "Adjustment Strategies for a Fixed Delivery Contract," Operations Research, INFORMS, vol. 48(3), pages 408-423, June.
    3. Viswanathan, S. & Wang, Qinan, 2003. "Discount pricing decisions in distribution channels with price-sensitive demand," European Journal of Operational Research, Elsevier, vol. 149(3), pages 571-587, September.
    4. Abel P. Jeuland & Steven M. Shugan, 1983. "Managing Channel Profits," Marketing Science, INFORMS, vol. 2(3), pages 239-272.
    5. Rajeev Kohli & Heungsoo Park, 1989. "A Cooperative Game Theory Model of Quantity Discounts," Management Science, INFORMS, vol. 35(6), pages 693-707, June.
    6. Tibben-Lembke, Ronald S., 2004. "N-period contracts with ordering constraints and total minimum commitments: Optimal and heuristic solutions," European Journal of Operational Research, Elsevier, vol. 156(2), pages 353-374, July.
    7. repec:inm:ormnsc:v:30:y:1984:i:12:p:1524-1539(2 is not listed on IDEAS
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    Cited by:

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    2. Luo, Zheng & Chen, Xu & Kai, Ming, 2018. "The effect of customer value and power structure on retail supply chain product choice and pricing decisions," Omega, Elsevier, vol. 77(C), pages 115-126.

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