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Surplus division and investment incentives in supply chains: A biform-game analysis

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  • Feess, Eberhard
  • Thun, Jörn-Henrik

Abstract

In this paper, we use a biform-game approach for analyzing the impact of surplus division in supply chains on investment incentives. In the first stage of the game, firms decide non-cooperatively on investments. In the second stage, the surplus is shared according to the Shapley value. We find that all firms have inefficiently low investment incentives which, however, depend on their position in the supply chain. Cross-subsidies for investment costs can mitigate, but not eliminate the underinvestment problem. Vertical integration between at least some firms.yields efficient investments, but may nevertheless reduce the aggregated payoff of the firms. We show how the size of our effects depends on the structure of the supply chain and the efficiency of the investment technology. Various extensions demonstrate that our results are qualitatively robust.

Suggested Citation

  • Feess, Eberhard & Thun, Jörn-Henrik, 2014. "Surplus division and investment incentives in supply chains: A biform-game analysis," European Journal of Operational Research, Elsevier, vol. 234(3), pages 763-773.
    • Handle: RePEc:eee:ejores:v:234:y:2014:i:3:p:763-773
    DOI: 10.1016/j.ejor.2013.09.039
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    4. van Beek, Andries & Malmberg, Benjamin & Borm, Peter & Quant, Marieke & Schouten, Jop, 2021. "Cooperation and Competition in Linear Production and Sequencing Processes," Discussion Paper 2021-011, Tilburg University, Center for Economic Research.
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    6. van Beek, Andries, 2023. "Solutions in multi-actor projects with collaboration and strategic incentives," Other publications TiSEM 3739c498-5edb-442f-87d8-c, Tilburg University, School of Economics and Management.
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