1. Coordination of supply chains by option contracts: A cooperative game theory approach
- Author
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Zhao, Yingxue, Wang, Shouyang, Cheng, T.C.E., Yang, Xiaoqi, and Huang, Zhimin
- Subjects
Game theory -- Analysis ,Retail industry -- Analysis ,Logistics -- Analysis ,Contract agreement ,Business ,Business, general ,Business, international - Abstract
To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.ejor.2010.05.017 Byline: Yingxue Zhao (a)(b), Shouyang Wang (a), T.C.E. Cheng (c), Xiaoqi Yang (d), Zhimin Huang (e)(f) Keywords: Supply chain management; Cooperative game; Option contract; Negotiating power; Channel coordination Abstract: Manufacturer-retailer supply chains commonly adopt a wholesale price mechanism. This mechanism, however, has often led manufacturers and retailers to situations of conflicts of interest. For example, due to uncertain market demand, retailers prefer to order flexibly from manufacturers so as to avoid incurring inventory costs and to be able to respond flexibly to market changes. Manufacturers, on the other hand, prefer retailers to place full orders as early as possible so that they can hedge against the risks of over- and under-production. Such conflicts between retailers and manufacturers can result in an inefficient supply chain. Motivated by this problem, we take a cooperative game approach in this paper to consider the coordination issue in a manufacturer-retailer supply chain using option contracts. Using the wholesale price mechanism as a benchmark, we develop an option contract model. Our study demonstrates that, compared with the benchmark based on the wholesale price mechanism, option contracts can coordinate the supply chain and achieve Pareto-improvement. We also discuss scenarios in which option contracts are selected according to individual supply chain members' risk preferences and negotiating powers. Author Affiliation: (a) Institute of Systems Science, Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100190, PR China (b) School of International Trade and Economics, University of International Business and Economics, Beijing 100029, PR China (c) Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, PR China (d) Department of Applied Mathematics, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, PR China (e) School of Business, Adelphi University, Garden City, NY 11530, USA (f) School of Business, Renmin University of China, Beijing 100872, PR China Article History: Received 27 May 2009; Accepted 13 May 2010
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- 2010