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Submitted to Operations Research manuscript OPRE-2009-05-225.R1

Summary: Submitted to Operations Research
manuscript OPRE-2009-05-225.R1
Supply Chain Competition with
Multiple Manufacturers and Retailers*
Elodie Adida
Mechanical and Industrial Engineering, University of Illinois at Chicago, elodie@uic.edu
Victor DeMiguel
Management Science and Operations, London Business School, avmiguel@london.edu
We study competition in a supply chain where multiple manufacturers compete in quantities to supply a
set of products to multiple risk-averse retailers who compete in quantities to satisfy the uncertain consumer
demand. For the symmetric supply chain, we give closed-form expressions for the unique equilibrium. We
find that, provided there is a sufficiently large number of manufacturers and retailers, the supply chain
efficiency (the ratio of the aggregate utility in the decentralized and centralized chains) can be raised to one
by inducing the right degree of retailer differentiation. Also, risk aversion results in triple marginalization:
retailers require a strictly positive margin to distribute even when they are perfectly competitive, as otherwise
they are unwilling to undertake the risk associated with the uncertainty in demand. For the asymmetric
supply chain, we show how numerical optimization can be used to compute the equilibria, and find that
the supply chain efficiency may drop sharply with the asymmetry of either manufacturers or retailers. We
also find that the introduction of asymmetric product assortment reduces the degree of competition among
retailers, and thus has an effect similar to that of reducing the number of retailers. We show that, unlike in


Source: Adida, Elodie - Department of Mechanical and Industrial Engineering, University of Illinois at Chicago


Collections: Engineering