Department of Operations Research and Operations Management, CWRU
We study models of interaction between upstream and downstream
agents in a supply chain for a single product with imperfect quality, in a
competitive market. Specifically, consider a retailer who can buy a product
from several suppliers. Each supplier as well as the retailer can improve the
quality of the product by (costly) inspection. Suppliers generally differ
in the quality and the wholesale price of the product offered.
The retailer has some flexibility in the degree of competition he can
induce among suppliers, by soliciting different types of offers (bids) for
the product from them. For example, he can require that they make offers
both on the wholesale price and the inspection rate, after which he makes
a supplier choice. Alternatively, the retailer may first require only price
offers, with the understanding that, once a supplier is selected, further
negotiations will take place regarding the product quality.
We develop game theoretic models for these alternative types of contracts,
and compare them in terms of their impact in retailers profitability,
equilibrium wholesale price, and average quality reaching the end customer.
Questions? Jiming Jiang