IDEAS home Printed from https://ideas.repec.org/a/wly/navres/v66y2019i3p272-280.html
   My bibliography  Save this article

Excess procurement strategies by a dominant buyer under constrained supply

Author

Listed:
  • Tarun Jain
  • Jishnu Hazra
  • Jayashankar M. Swaminathan

Abstract

Supply chains are often characterized by the presence of a dominant buyer purchasing from a supplier with limited capacity. We study such a situation where a single supplier sells capacity to an established and more powerful buyer and also to a relatively less powerful buyer. The more powerful buyer enjoys the first right to book her capacity requirements at supplier's end, and then the common supplier fulfills the requirement of the less powerful buyer. We find that when the supplier's capacity is either too low (below the lower threshold) or too high (above the higher threshold), there is no excess procurement as compared to the case when supplier has infinite capacity. When the supplier's capacity is between these two thresholds, the more powerful buyer purchases an excess amount in comparison to the infinite capacity case.

Suggested Citation

  • Tarun Jain & Jishnu Hazra & Jayashankar M. Swaminathan, 2019. "Excess procurement strategies by a dominant buyer under constrained supply," Naval Research Logistics (NRL), John Wiley & Sons, vol. 66(3), pages 272-280, April.
  • Handle: RePEc:wly:navres:v:66:y:2019:i:3:p:272-280
    DOI: 10.1002/nav.21838
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/nav.21838
    Download Restriction: no

    File URL: https://libkey.io/10.1002/nav.21838?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Zanchettin, Piercarlo & Mukherjee, Arijit, 2017. "Vertical integration and product differentiation," International Journal of Industrial Organization, Elsevier, vol. 55(C), pages 25-57.
    2. Oliver Hart & Jean Tirole, 1990. "Vertical Integration and Market Foreclosure," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 205-286.
    3. Lucy Gongtao Chen & Ding Ding & Jihong Ou, 2014. "Power Structure and Profitability in Assembly Supply Chains," Production and Operations Management, Production and Operations Management Society, vol. 23(9), pages 1599-1616, September.
    4. Jaideep Shenoy, 2012. "An Examination of the Efficiency, Foreclosure, and Collusion Rationales for Vertical Takeovers," Management Science, INFORMS, vol. 58(8), pages 1482-1501, August.
    5. S. Alex Yang & John R. Birge & Rodney P. Parker, 2015. "The Supply Chain Effects of Bankruptcy," Management Science, INFORMS, vol. 61(10), pages 2320-2338, October.
    6. Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(2), pages 345-356.
    7. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
    8. 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.
    9. Serguei Netessine & Fuqiang Zhang, 2005. "Positive vs. Negative Externalities in Inventory Management: Implications for Supply Chain Design," Manufacturing & Service Operations Management, INFORMS, vol. 7(1), pages 58-73, January.
    10. Anyan Qi & Hyun-Soo Ahn & Amitabh Sinha, 2015. "Investing in a Shared Supplier in a Competitive Market: Stochastic Capacity Case," Production and Operations Management, Production and Operations Management Society, vol. 24(10), pages 1537-1551, October.
    11. Zizhuo Wang & Ming Hu, 2014. "Committed Versus Contingent Pricing Under Competition," Production and Operations Management, Production and Operations Management Society, vol. 23(11), pages 1919-1936, November.
    12. Soo-Haeng Cho & Christopher S. Tang, 2014. "Technical Note---Capacity Allocation Under Retail Competition: Uniform and Competitive Allocations," Operations Research, INFORMS, vol. 62(1), pages 72-80, February.
    13. Itai Ater, 2015. "Vertical Foreclosure Using Exclusivity Clauses: Evidence from Shopping Malls," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(3), pages 620-642, September.
    14. Serguei Netessine & Nils Rudi, 2003. "Centralized and Competitive Inventory Models with Demand Substitution," Operations Research, INFORMS, vol. 51(2), pages 329-335, April.
    15. Wedad J. Elmaghraby, 2000. "Supply Contract Competition and Sourcing Policies," Manufacturing & Service Operations Management, INFORMS, vol. 2(4), pages 350-371, April.
    16. Desheng Wu & Baofeng Zhang & Opher Baron, 2019. "A Trade Credit Model with Asymmetric Competing Retailers," Production and Operations Management, Production and Operations Management Society, vol. 28(1), pages 206-231, January.
    17. Sammi Yu Tang & Panos Kouvelis, 2011. "Supplier Diversification Strategies in the Presence of Yield Uncertainty and Buyer Competition," Manufacturing & Service Operations Management, INFORMS, vol. 13(4), pages 439-451, October.
    18. Steven A. Lippman & Kevin F. McCardle, 1997. "The Competitive Newsboy," Operations Research, INFORMS, vol. 45(1), pages 54-65, February.
    19. Mahmut Parlar, 1988. "Game theoretic analysis of the substitutable product inventory problem with random demands," Naval Research Logistics (NRL), John Wiley & Sons, vol. 35(3), pages 397-409, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ghamat, Salar & Pun, Hubert, 2023. "The impact of capacity information on lexicographical capacity allocation," European Journal of Operational Research, Elsevier, vol. 308(2), pages 636-649.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Silbermayr, Lena, 2020. "A review of non-cooperative newsvendor games with horizontal inventory interactions," Omega, Elsevier, vol. 92(C).
    2. Chung‐Yee Lee & Tao Lu, 2015. "Inventory competition with yield reliability improvement," Naval Research Logistics (NRL), John Wiley & Sons, vol. 62(2), pages 107-126, March.
    3. Ye, Taofeng, 2014. "Inventory management with simultaneously horizontal and vertical substitution," International Journal of Production Economics, Elsevier, vol. 156(C), pages 316-324.
    4. Shi, Chunming (Victor) & Yang, Shilei & Xia, Yu & Zhao, Xuan, 2011. "Inventory competition for newsvendors under the objective of profit satisficing," European Journal of Operational Research, Elsevier, vol. 215(2), pages 367-373, December.
    5. Lei Lei & Jun Ru & Ruixia Shi & Jun Zhang, 2022. "A Two‐Product Newsvendor Problem with Partial Demand Substitution," Production and Operations Management, Production and Operations Management Society, vol. 31(3), pages 1157-1173, March.
    6. Houyuan Jiang & Serguei Netessine & Sergei Savin, 2011. "TECHNICAL NOTE---Robust Newsvendor Competition Under Asymmetric Information," Operations Research, INFORMS, vol. 59(1), pages 254-261, February.
    7. Zhang, Ren-Qian & Yi, Meng & Wang, Qi-Qi & Xiang, Chen, 2018. "Polynomial algorithm of inventory model with complete backordering and correlated demand caused by cross-selling," International Journal of Production Economics, Elsevier, vol. 199(C), pages 193-198.
    8. Felipe Caro & Victor Martínez-de-Albéniz, 2010. "The Impact of Quick Response in Inventory-Based Competition," Manufacturing & Service Operations Management, INFORMS, vol. 12(3), pages 409-429, January.
    9. Zhang, Ren-Qian & Zhang, Lan-Kang & Zhou, Wen-Hui & Saigal, Romesh & Wang, Hui-Wen, 2014. "The multi-item newsvendor model with cross-selling and the solution when demand is jointly normally distributed," European Journal of Operational Research, Elsevier, vol. 236(1), pages 147-159.
    10. Dasci, A. & Karakul, M., 2009. "Two-period dynamic versus fixed-ratio pricing in a capacity constrained duopoly," European Journal of Operational Research, Elsevier, vol. 197(3), pages 945-968, September.
    11. Vishal Gaur & Young-Hoon Park, 2007. "Asymmetric Consumer Learning and Inventory Competition," Management Science, INFORMS, vol. 53(2), pages 227-240, February.
    12. Geng, Qin & Mallik, Suman, 2007. "Inventory competition and allocation in a multi-channel distribution system," European Journal of Operational Research, Elsevier, vol. 182(2), pages 704-729, October.
    13. Zhu, Chenbo & Hu, JianQiang, 2020. "Revenue management games with government mandate," Omega, Elsevier, vol. 93(C).
    14. Li Chen & Erica L. Plambeck, 2008. "Dynamic Inventory Management with Learning About the Demand Distribution and Substitution Probability," Manufacturing & Service Operations Management, INFORMS, vol. 10(2), pages 236-256, May.
    15. Qi, Yuqing & Ni, Weihong & Shi, Kuiran, 2015. "Game theoretic analysis of one manufacturer two retailer supply chain with customer market search," International Journal of Production Economics, Elsevier, vol. 164(C), pages 57-64.
    16. Johan Hombert & Jérôme Pouyet & Nicolas Schutz, 2019. "Anticompetitive Vertical Merger Waves," Journal of Industrial Economics, Wiley Blackwell, vol. 67(3-4), pages 484-514, September.
    17. Liu, Wei & Song, Shiji & Wu, Cheng, 2013. "Impact of loss aversion on the newsvendor game with product substitution," International Journal of Production Economics, Elsevier, vol. 141(1), pages 352-359.
    18. Gérard P. Cachon & Martin A. Lariviere, 2005. "Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations," Management Science, INFORMS, vol. 51(1), pages 30-44, January.
    19. Silbermayr, Lena & Gerchak, Yigal, 2019. "Partial pooling by independent firms with allocation according to contribution to pool," International Journal of Production Economics, Elsevier, vol. 218(C), pages 375-385.
    20. Rey, Patrick & Salant, David, 2012. "Abuse of dominance and licensing of intellectual property," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 518-527.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:navres:v:66:y:2019:i:3:p:272-280. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)1520-6750 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.