IDEAS home Printed from https://ideas.repec.org/a/inm/oropre/v65y2017i6p1535-1545.html
   My bibliography  Save this article

Technical Note—Local Bargaining and Supply Chain Instability

Author

Listed:
  • Thành Nguyen

    (Krannert School of Management, Purdue University, West Lafayette, Indiana 47907)

Abstract

We analyze the behavior of a competitive n -tier supply chain system, where agents bargain with each other locally. We study the influence of transaction costs on the convergence of the system to a stationary outcome. In particular, we consider a dynamic bargaining game among a finite set of agents and its replications, and use a limit stationary equilibrium to examine the system’s behavior as the population’s size goes to infinity. The convergence of the system to a limit stationary equilibrium would capture the common belief that as the market gets large, it converges to a competitive and stable outcome. However, we prove that depending on the underlying transaction costs, the system might not converge to such an equilibrium. Interestingly, our result shows that a small increase in the transaction cost at one end of the chain can be greatly amplified and shifts the system away from the steady state. When a limit stationary equilibrium exists, we show that it is unique. We use such an equilibrium outcome to study trade surplus among sellers, buyers, and middlemen.

Suggested Citation

  • Thành Nguyen, 2017. "Technical Note—Local Bargaining and Supply Chain Instability," Operations Research, INFORMS, vol. 65(6), pages 1535-1545, December.
    • Handle: RePEc:inm:oropre:v:65:y:2017:i:6:p:1535-1545
    DOI: 10.1287/opre.2017.1605
    as

    Download full text from publisher

    File URL: https://doi.org/10.1287/opre.2017.1605
    Download Restriction: no
    File URL: https://libkey.io/10.1287/opre.2017.1605?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Michaela Draganska & Daniel Klapper & Sofia B. Villas-Boas, 2010. "A Larger Slice or a Larger Pie? An Empirical Investigation of Bargaining Power in the Distribution Channel," Marketing Science, INFORMS, vol. 29(1), pages 57-74, 01-02.
    2. Guillaume Rocheteau & Randall Wright, 2005. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 73(1), pages 175-202, January.
    3. Darrell Duffie, 2012. "Over-The-Counter Markets," Introductory Chapters, in: Dark Markets: Asset Pricing and Information Transmission in Over-the-Counter Markets, Princeton University Press.
    4. Georgia Perakis & Guillaume Roels, 2007. "The Price of Anarchy in Supply Chains: Quantifying the Efficiency of Price-Only Contracts," Management Science, INFORMS, vol. 53(8), pages 1249-1268, August.
    5. Zhixi Wan & Damian R. Beil, 2014. "Bid-Taker Power and Supply Base Diversification," Manufacturing & Service Operations Management, INFORMS, vol. 16(2), pages 300-314, May.
    6. Thành Nguyen, 2015. "Coalitional Bargaining in Networks," Operations Research, INFORMS, vol. 63(3), pages 501-511, June.
    7. Mahesh Nagarajan & Yehuda Bassok, 2008. "A Bargaining Framework in Supply Chains: The Assembly Problem," Management Science, INFORMS, vol. 54(8), pages 1482-1496, August.
    8. Thành Nguyen & Vijay Subramanian & Randall Berry, 2016. "Delay in Trade Networks," Operations Research, INFORMS, vol. 64(3), pages 646-661, June.
    9. A. P. Lerner, 1934. "The Concept of Monopoly and the Measurement of Monopoly Power," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 1(3), pages 157-175.
    10. Martin A. Lariviere & Evan L. Porteus, 2001. "Selling to the Newsvendor: An Analysis of Price-Only Contracts," Manufacturing & Service Operations Management, INFORMS, vol. 3(4), pages 293-305, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Thành Nguyen & Karthik Kannan, 2021. "Welfare Implications in Intermediary Networks," Information Systems Research, INFORMS, vol. 32(2), pages 378-393, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Elif Özcan-Tok, 2020. "Bargaining on supply chain networks with heterogeneous valuations," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 28(2), pages 506-525, July.
    2. Santiago R. Balseiro & Ozan Candogan & Huseyin Gurkan, 2021. "Multistage Intermediation in Display Advertising," Manufacturing & Service Operations Management, INFORMS, vol. 23(3), pages 714-730, May.
    3. Berentsen, Aleksander & Huber, Samuel & Marchesiani, Alessandro, 2016. "The societal benefit of a financial transaction tax," European Economic Review, Elsevier, vol. 89(C), pages 303-323.
    4. Donna, Javier D. & Pereira, Pedro & Trindade, Andre & Yoshida, Renan C., 2020. "Direct-to-Consumer Sales by Manufacturers and Bargaining," MPRA Paper 105773, University Library of Munich, Germany.
    5. Panos Kouvelis & Wenhui Zhao, 2012. "Financing the Newsvendor: Supplier vs. Bank, and the Structure of Optimal Trade Credit Contracts," Operations Research, INFORMS, vol. 60(3), pages 566-580, June.
    6. Han, Han & Julien, Benoît & Petursdottir, Asgerdur & Wang, Liang, 2019. "Asset liquidity and indivisibility," European Economic Review, Elsevier, vol. 119(C), pages 236-250.
    7. Nosal, Ed & Rocheteau, Guillaume, 2013. "Pairwise trade, asset prices, and monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 1-17.
    8. Wang, Xiuli & Zhu, Qianqian & Cheng, T.C.E., 2015. "Subcontracting price schemes for order acceptance and scheduling," Omega, Elsevier, vol. 54(C), pages 1-10.
    9. Rocheteau, Guillaume & Wright, Randall, 2013. "Liquidity and asset-market dynamics," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 275-294.
    10. Rocheteau, Guillaume, 2011. "Payments and liquidity under adverse selection," Journal of Monetary Economics, Elsevier, vol. 58(3), pages 191-205.
    11. Athanasios Geromichalos & Kuk Mo Jung, 2019. "Monetary policy and efficiency in over-the-counter financial trade," Canadian Journal of Economics, Canadian Economics Association, vol. 52(4), pages 1699-1754, November.
    12. Trejos, Alberto & Wright, Randall, 2016. "Search-based models of money and finance: An integrated approach," Journal of Economic Theory, Elsevier, vol. 164(C), pages 10-31.
    13. Budde, Maximilian & Minner, Stefan, 2014. "First- and second-price sealed-bid auctions applied to push and pull supply contracts," European Journal of Operational Research, Elsevier, vol. 237(1), pages 370-382.
    14. Qi Feng & Chengzhang Li & Mengshi Lu & J. George Shanthikumar, 2022. "Implementing Environmental and Social Responsibility Programs in Supply Networks Through Multiunit Bilateral Negotiation," Management Science, INFORMS, vol. 68(4), pages 2579-2599, April.
    15. Rocheteau, Guillaume & Rodriguez-Lopez, Antonio, 2014. "Liquidity provision, interest rates, and unemployment," Journal of Monetary Economics, Elsevier, vol. 65(C), pages 80-101.
    16. Ye, Yu-Sen & Ma, Zu-Jun & Dai, Ying, 2016. "The price of anarchy in competitive reverse supply chains with quality-dependent price-only contracts," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 89(C), pages 86-107.
    17. Enis Kayis & Feryal Erhun & Erica L. Plambeck, 2013. "Delegation vs. Control of Component Procurement Under Asymmetric Cost Information and Simple Contracts," Manufacturing & Service Operations Management, INFORMS, vol. 15(1), pages 45-56, April.
    18. Guillaume Rocheteau & Randall Wright & Cathy Zhang, 2018. "Corporate Finance and Monetary Policy," American Economic Review, American Economic Association, vol. 108(4-5), pages 1147-1186, April.
    19. Huber, Samuel & Kim, Jaehong, 2019. "The role of trading frictions in financial markets," Journal of Economic Dynamics and Control, Elsevier, vol. 99(C), pages 1-18.
    20. Veronica Guerrieri & Guido Lorenzoni, 2009. "Liquidity and Trading Dynamics," Econometrica, Econometric Society, vol. 77(6), pages 1751-1790, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:oropre:v:65:y:2017:i:6:p:1535-1545. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.