37 research outputs found
A Procurement Auction Model Under Supplier Uncertainty
As business-to-business commerce shifts to the Internet, newer suppliers with cheaper but unreliable technologies enter the market place to win orders from firms by beating the price of their perfectly reliable (but expensive) competitors. The dilemma facing purchasing firms is the allocation of the tender across suppliers of varying supply reliability. We model the procurement problem as a sealed-bid auction where the buyer has to allocate purchases between an expensive but reliable supplier and a cheaper but unreliable supplier, and the suppliers specify prices for different proportions of the tender awarded to them. A unique feature of our model is that it allows the purchasing firm to reserve the right to change the size of the total tender awarded depending on the nature of the bids received from the suppliers. We prove that the set of Nash equilibrium outcomes coincides with the set of efficient outcomes, and for strictly convex cost functions, the outcome is unique. Further, we show that the possibility of implicit supplier collusion is strengthened in that the suppliers may structure their bids forcing the buyer to allocate the tender resulting in the worst-case (highest price) scenario for him. We also show that the Anton-Yao (A-Y, 1989) model can be interpreted as a limiting case of our model and that the efficient outcome derived in this paper is the only robust outcome in the A-Y model.
A Procurement Auction Model Under Supplier Uncertainty
As business-to-business commerce shifts to the Internet, newer suppliers with cheaper but unreliable technologies enter the market place to win orders from firms by beating the price of their perfectly reliable (but expensive) competitors. The dilemma facing purchasing firms is the allocation of the tender across suppliers of varying supply reliability. We model the procurement problem as a sealed-bid auction where the buyer has to allocate purchases between an expensive but reliable supplier and a cheaper but unreliable supplier, and the suppliers specify prices for different proportions of the tender awarded to them. A unique feature of our model is that it allows the purchasing firm to reserve the right to change the size of the total tender awarded depending on the nature of the bids received from the suppliers. We prove that the set of Nash equilibrium outcomes coincides with the set of efficient outcomes, and for strictly convex cost functions, the outcome is unique. Further, we show that the possibility of implicit supplier collusion is strengthened in that the suppliers may structure their bids forcing the buyer to allocate the tender resulting
in the worst-case (highest price) scenario for him. We also show that the Anton-Yao (A-Y, 1989) model can be interpreted as a limiting case of our model and that the
efficient outcome derived in this paper is the only robust outcome in the A-Y model
A Procurement Auction Model Under Supplier Uncertainty
As business-to-business commerce shifts to the Internet, newer suppliers with cheaper but unreliable technologies enter the market place to win orders from firms by beating the price of their perfectly reliable (but expensive) competitors. The dilemma facing purchasing firms is the allocation of the tender across suppliers of varying supply reliability. We model the procurement problem as a sealed-bid auction where the buyer has to allocate purchases between an expensive but reliable supplier and a cheaper but unreliable supplier, and the suppliers specify prices for different proportions of the tender awarded to them. A unique feature of our model is that it allows the purchasing firm to reserve the right to change the size of the total tender awarded depending on the nature of the bids received from the suppliers. We prove that the set of Nash equilibrium outcomes coincides with the set of efficient outcomes, and for strictly convex cost functions, the outcome is unique. Further, we show that the possibility of implicit supplier collusion is strengthened in that the suppliers may structure their bids forcing the buyer to allocate the tender resulting
in the worst-case (highest price) scenario for him. We also show that the Anton-Yao (A-Y, 1989) model can be interpreted as a limiting case of our model and that the
efficient outcome derived in this paper is the only robust outcome in the A-Y model
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Optimal Returns Policy under Demand Uncertainty
Multiple categories of retail products suffer limited shelf life, demand uncertainty, and, in some cases, long lead times. To provide retailers with an incentive to increase the stocking quantity of such products, manufacturers may offer an option to return unsold items at wholesale or less than wholesale prices. This article extends the additive price-dependent demand model in three ways. First, partial returns are optimal for the manufacturer but do not induce higher stocking quantities compared with when the manufacturer offers no returns. Second, in terms of the effect of investment in demand-enhancing activities, when retailers invest, they set higher resale prices, but an optimal partial returns policy still does not induce higher stocking quantity, whereas when manufacturers invest, the optimal returns policy induces higher stocking quantity. Third, when the manufacturer and retailer have different expectations of demand uncertainty, the retailer's estimate influences the expected profits for both, whereas the manufacturer's estimate has a major impact on its profits only