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open access

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A supply chain member should set its margin later if another member's cost is highly uncertain

English (英語)

European Journal of Operational Research

275(1)

127-138

Elsevier B.V.

2019-05-16

2019-02-20

Recently, there have been several cases in which a large-scale retailer has demanded a margin for a consumer product from a supplier before the supplier has determined the margin or the wholesale price, reflecting a power shift from upstream suppliers to downstream retailers in supply chains. Given the recent change of power structures in supply chains, we investigate a practical decision-making problem of when a supply chain member should set its margin in the presence of uncertainty based on a stochastic game-theoretic supply chain model. We assume a typical two-echelon supply chain that consists of a manufacturer and a retailer, each of which determines the margin of a product based on private information of its marginal cost. Hence, the cost structure of a firm is uncertain and is known only to the firm. We construct an incomplete information game model with this setting, drawing the following clear-cut managerial implication: a supply chain member should set its margin later if the other member's cost is highly uncertain. By delaying decision-making, the late-moving member can make a more precise inference on the cost of the early-moving member by observing the margin demanded by the early-mover, thereby choosing a more desirable margin. Despite the current power shift from manufacturers to large-scale retailers in various consumer product categories, our result warns a retailer that if it assumes leadership to demand a margin from a manufacturer in an uncertain environment simply because it has power, it may cut its own throat.

Game theory

学術雑誌論文

This is an open access article under the CC BY license. (http://creativecommons.org/licenses/by/4.0/)