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Allocation with demand competition: Uniform, proportional, and lexicographic mechanisms

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  • Jianbin Li
  • Niu Yu
  • Zhixin Liu
  • Xueyuan Cai

Abstract

We examine capacity allocation mechanisms in a supply chain comprising a monopolistic supplier and two competing retailers with asymmetric market powers. The supplier allocates limited capacity to retailers according to uniform, proportional, or lexicographic mechanism. We study the impact of these allocation mechanisms on supplier pricing decisions and retailer ordering behavior. With individual order size no greater than supplier capacity, we show that all three mechanisms guarantee equilibrium ordering. We provide precise structures of retailer ordering decisions in Nash and dominant equilibria. Further, we compare the mechanisms from the perspective of the supplier, the retailers, and the supply chain. We show that regardless of whether retailer market powers are symmetric, lexicographic allocation with any priority sequence of retailers is better than the other two mechanisms for the supplier. Further, under lexicographic allocation, the supplier gains more profit by granting higher priority to the retailer with greater market power. We also extend our study to the case with multiple retailers. © 2017 Wiley Periodicals, Inc. Naval Research Logistics 64: 85–107, 2017

Suggested Citation

  • Jianbin Li & Niu Yu & Zhixin Liu & Xueyuan Cai, 2017. "Allocation with demand competition: Uniform, proportional, and lexicographic mechanisms," Naval Research Logistics (NRL), John Wiley & Sons, vol. 64(2), pages 85-107, March.
    • Handle: RePEc:wly:navres:v:64:y:2017:i:2:p:85-107
    DOI: 10.1002/nav.21734
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    References listed on IDEAS

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    Cited by:

    1. Cai, Xueyuan & Li, Jianbin & Lian, Zhaotong & Liu, Zhixin, 2022. "Fixed allocation of capacity for multiple retailers under demand competition," Omega, Elsevier, vol. 110(C).
    2. LIN, Feng & QIN, Xibei & PU, Xujin & ZHU, Weiwei & ZHUO, Xingxuan, 2021. "Effects of in-house production on channel structures in a co-opetitive supply chain under supply uncertainty," Omega, Elsevier, vol. 103(C).

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