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An analysis of efficiency of time-consistent coordination mechanisms in a model of supply chain management

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  • Lu, Lijue
  • Marín-Solano, Jesús
  • Navas, Jorge

Abstract

In this paper, we study an advertising dynamic game in supply chain management under the assumption that the agents differ in their time preference rates. We study two coordination mechanisms: the cost sharing program, where the retailer can get some reimbursement of the advertising cost from the manufacturer; and the vertical integration, where the two players aim to maximize the joint profit. We derive the time-consistent cooperative advertising strategies in each coordination setting, and we compare them with the non-cooperative case. Our results show that, the cost sharing program is Pareto superior to the non-cooperative setting, while vertical integration could be more preferred by the manufacturer and less preferred by the retailer if the initial goodwill level is sufficiently high. Besides, unlike previous results in the literature, we found that when the agents’ discount rates are very different, joint profits could be lower under vertical integration than in the non-cooperative case, which yields an inefficient cooperation.

Suggested Citation

  • Lu, Lijue & Marín-Solano, Jesús & Navas, Jorge, 2019. "An analysis of efficiency of time-consistent coordination mechanisms in a model of supply chain management," European Journal of Operational Research, Elsevier, vol. 279(1), pages 211-224.
    • Handle: RePEc:eee:ejores:v:279:y:2019:i:1:p:211-224
    DOI: 10.1016/j.ejor.2019.05.031
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    Cited by:

    1. Yaxin Wang & Haoyu Wen & ZhongQuan Hu & Yuntao Zhang, 2023. "Collaborative Innovation Strategy of Supply Chain in the Context of MCU Domestic Substitution : A Differential Game Analysis," Computational Economics, Springer;Society for Computational Economics, vol. 61(3), pages 1039-1074, March.
    2. Wu, Cheng-Han, 2021. "A dynamic perspective of government intervention in a competitive closed-loop supply chain," European Journal of Operational Research, Elsevier, vol. 294(1), pages 122-137.
    3. Lu, Lijue & Navas, Jorge, 2021. "Advertising and quality improving strategies in a supply chain when facing potential crises," European Journal of Operational Research, Elsevier, vol. 288(3), pages 839-851.
    4. Guan, Zhimin & Ye, Tong & Yin, Rui, 2020. "Channel coordination under Nash bargaining fairness concerns in differential games of goodwill accumulation," European Journal of Operational Research, Elsevier, vol. 285(3), pages 916-930.
    5. Huijin Cheng & Hao Ding, 2020. "Incentive Decision for Supply Chain with Corporate Social Responsibility and Lag Effect," Sustainability, MDPI, vol. 12(7), pages 1-19, March.

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