Monopoly Pricing in a Vertical Market with Demand Uncertainty

We study a vertical market with an upsteam supplier and multiple downstream retailers. Demand uncertainty falls to the supplier who acts first and sets a uniform wholesale price before the retailers observe the realized demand and engage in retail competition. Our focus is on the supplier's optimal pricing decision. We express the price elasticity of expected demand in terms of the mean residual demand (MRD) function of the demand distribution. This allows for a closed form characterization of the points of unitary elasticity that maximize the supplier's profits and the derivation of a mild unimodality condition for the supplier's objective function that generalizes the widely used increasing generalized failure rate (IGFR) condition. A direct implication is that optimal prices between different markets can be ordered if the markets can be stochastically ordered according to their MRD functions or equivalently to their elasticities. Based on this, we apply the theory of stochastic orders to study the response of the supplier's optimal price to various features of the demand distribution. Our findings challenge previously established economic insights about the effects of market size, demand transformations and demand variability on wholesale prices and indicate that the conclusions largely depend on the exact notion that will be employed. We then turn to measure market performance and derive a distribution free and tight bound on the probability of no trade between the supplier and the retailers. If trade takes place, our findings indicate that ovarall performance depends on the interplay between demand uncertainty and level of retail competition

Bilevel models on the competitive facility location problem

Facility location and allocation problems have been a major area of research for decades, which has led to a vast and still growing literature. Although there are many variants of these problems, there exist two common features: finding the best locations for one or more facilities and allocating demand points to these facilities. A considerable number of studies assume a monopolistic viewpoint and formulate a mathematical model to optimize an objective function of a single decision maker. In contrast, competitive facility location (CFL) problem is based on the premise that there exist competition in the market among different firms. When one of the competing firms acts as the leader and the other firm, called the follower, reacts to the decision of the leader, a sequential-entry CFL problem is obtained, which gives rise to a Stackelberg type of game between two players. A successful and widely applied framework to formulate this type of CFL problems is bilevel programming (BP). In this chapter, the literature on BP models for CFL problems is reviewed, existing works are categorized with respect to defined criteria, and information is provided for each work.WOS:000418225000002Scopus - Affiliation ID: 60105072Book Citation Index- Science - Book Citation Index- Social Sciences and HumanitiesArticle; Book ChapterOcak2017YÖK - 2016-1

Virtual transshipments and revenue-sharing contracts in supply chain management

This dissertation presents the use of virtual transshipments and revenue-sharing contracts for inventory control in a small scale supply chain. The main objective is to maximize the total profit in a centralized supply chain or maximize the supply chain\u27s profit while keeping the individual components\u27 incentives in a decentralized supply chain. First, a centralized supply chain with two capacitated manufacturing plants situated in two distinct geographical regions is considered. Normally, demand in each region is mostly satisfied by the local plant. However, if the local plant is understocked while the remote one is overstocked, some of the newly generated demand can be assigned to be served by the more remote plant. The sources of the above virtual lateral transshipments, unlike the ones involved in real lateral transshipments, do not need to have nonnegative inventory levels throughout the transshipment process. Besides the theoretical analysis for this centralized supply chain, a computational study is conducted in detail to illustrate the ability of virtual lateral transshipments to reduce the total cost. The impacts of the parameters (unit holding cost, production cost, goodwill cost, etc.) on the cost savings that can be achieved by using the transshipment option are also assessed. Then, a supply chain with one supplier and one retailer is considered where a revenue-sharing contract is adopted. In this revenue-sharing contract, the retailer may obtain the product from the supplier at a less-than-production-cost price, but in exchange, the retailer must share the revenue with the supplier at a pre-set revenuesharing rate. The objective is to maximize the overall supply chain\u27s total profit while upholding the individual components\u27 incentives. A two-stage Stackelberg game is used for the analysis. In this game, one player is the leader and the other one is the follower. The analysis reveals that the party who keeps more than half of the revenue should also be the leader of the Stackelberg game. Furthermore, the adoption of a revenue-sharing contract in a supply chain with two suppliers and one retailer under a limited amount of available funds is analyzed. Using the revenue-sharing contract, the retailer pays a transfer cost rate of the production cost per unit when he obtains the items from the suppliers, and shares the revenue with the suppliers at a pre-set revenue-sharing rate. The two suppliers have different transfer cost rates and revenue-sharing rates. The retailer will earn more profit per unit with a higher transfer cost rate. How the retailer orders items from the two suppliers to maximize his expected profit under limited available funds is analyzed next. Conditions are shown under which the optimal way the retailer orders items from the two suppliers exists

Cooperation in Supply Chain Networks: Motives, Outcomes, and Barriers

This paper analyzes the phenomenon of cooperation in modern supply chains in the light of Game Theory. We first provide a discussion on the meaning of cooperation in supply chains, its motives, outcomes and barriers. We then highlighted the applicability of Cooperative Game Theory as methodology for analyzing cooperation in supply chains. Second, we review recent studies that analyze the cooperation in supply chains by means of cooperative game theory. A special emphasis will be given inventory centralizations games. Finally, gaps in the literature are identified to clarify and to suggest future research opportunities

Coordinating a Supply Chain With a Manufacturer-Owned Online Channel: A Dual Channel Model Under Price Competition

We consider a dual channel supply chain in which a manufacturer sells a single product to end-users through both a traditional retail channel and a manufacturer-owned direct online channel. We adopt a commonly used linear demand substitution model in which the mean demand in each channel is a function of the prices in each channel.We model each channel as a news vendor problem, with price and order quantity as decision variables. In addition, the manufacturer must choose the wholesale price to charge to the independent retailer. We analyze the optimal decisions for each channel and prove the existence of a unique equilibrium for the system. We compare this equilibrium solution to the solution for an integrated system, in which the manufacturer owns both the online store and the retailer. To enable supply chain coordination, we propose two contract schemes: a modified revenue-sharing contract and gain/loss sharing contract. We show that, in cases where the retail channel has a larger market than the online channel, such contracts enable the manufacturer to maintain price discrimination, selling the products in different channels at different prices. Finally, we perform a comprehensive numerical study to consider the impact of the model parameters on the equilibrium and to demonstrate the performance of the proposed coordination contracts. We conclude that coordination is most critical for products which are highly price sensitive and for systems in which the online and traditional retail channels are not viewed as close substitutes

Prognostics-Based Two-Operator Competition for Maintenance and Service Part Logistics

Prognostics and timely maintenance of components are critical to the continuing operation of a system. By implementing prognostics, it is possible for the operator to maintain the system in the right place at the right time. However, the complexity in the real world makes near-zero downtime difficult to achieve partly because of a possible shortage of required service parts. This is realistic and quite important in maintenance practice. To coordinate with a prognostics-based maintenance schedule, the operator must decide when to order service parts and how to compete with other operators who also need the same parts. This research addresses a joint decision-making approach that assists two operators in making proactive maintenance decisions and strategically competing for a service part that both operators rely on for their individual operations. To this end, a maintenance policy involving competition in service part procurement is developed based on the Stackelberg game-theoretic model. Variations of the policy are formulated for three different scenarios and solved via either backward induction or genetic algorithm methods. Unlike the first two scenarios, the possibility for either of the operators being the leader in such competitions is considered in the third scenario. A numerical study on wind turbine operation is provided to demonstrate the use of the joint decision-making approach in maintenance and service part logistics

Pricing decision for new and remanufactured product in a closed-loop supply chain with separate sales-channel

Remanufacturing is a recovery process that transforms a used product into a “like-new” product, which usually comes with a warranty similar to that of the new product. Many manufacturers are concerned that remanufacturing might cannibalize the new products sales. Recent development shows an increasing trend in selling products through non-traditional channels, such as a manufacturers direct channel or an e-channel. A pricing decision model is developed for short life-cycle products in a closed-loop supply chain that consists of the manufacturer, retailer, and collector. The new product is sold via traditional retail stores and the remanufactured product is sold via the manufacturers direct channel. There are two scaling factors introduced in the model: (1) customer acceptance of buying a remanufactured product (reman-acceptance); (2) customer preference for buying a remanufactured product via a direct channel (direct-channel-preference). The results show that implementing a separate channel can improve the total supply chains profit compared to the single-channel approach. It is also found that the two scaling factors influence both the pricing decisions and profits of supply-chain members