Channel coordination using options contract under simultaneous price and inventory competition. (March 2019)

• Record Type: Journal Article
• Authors: Biswas, Indranil; Avittathur, Balram
• Is Part Of: Transportation research. Volume 123(2019)
• Page Start: 45
• Page End: 60
• Publication Date: 2019-03
• Subjects: Options contract -- Coordination -- Supply chain management -- Nash equilibrium -- Pricing -- Competition; Logistics -- Periodicals; Transportation -- Periodicals; 388.011
• DOI: 10.1016/j.tre.2019.01.010
• Languages: English
• ISSNs: 1366-5545

Abstract

Highlights: Single supplier - multiple buyer supply chain can be coordinated by options contract. A pure strategy unique Nash equilibrium exists for the buyers' game. It eliminates channel conflict due to simultaneous price and inventory competition. Supplier has better flexibility for profit allocation compared to buyback contract. Options contract can achieve coordination only with a limited number of buyers. Abstract: In this paper we demonstrate that options contract coordinates single supplier - multiple buyer supply chain network and can eliminate channel conflict stemming from simultaneous price and inventory competition. We show that a pure strategy unique Nash equilibrium exists for buyers' game and the supplier is able to coordinate the entire supply chain. Our analysis further indicates that options contract provides the supplier with better flexibility in terms of profit allocation compared to buyback contract. We identify a key limitation of this contract: it can coordinate a supply chain only with a limited number of buyers.