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Analysis of a Duopoly Supply Chain and its Application in Electricity Spot Markets

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  • Suresh Sethi
  • Houmin Yan
  • Hanqin Zhang

Abstract

This paper studies a supply chain consisting of two suppliers and one retailer in a spot market, where the retailer uses the newsvendor solution as its purchase policy, and suppliers compete for the retailer’s purchase. Since each supplier’s bidding strategy affects the other’s profit, a game theory approach is used to identify optimal bidding strategies. We prove the existence and uniqueness of a Nash solution. It is also shown that the competition between the supplier leads to a lower market clearing price, and as a result, the retailer benefits from it. Finally, we demonstrate the applicability of the obtained results by deriving optimal bidding strategies for power generator plants in the deregulated California energy market. Copyright Springer Science + Business Media, Inc. 2005

Suggested Citation

  • Suresh Sethi & Houmin Yan & Hanqin Zhang, 2005. "Analysis of a Duopoly Supply Chain and its Application in Electricity Spot Markets," Annals of Operations Research, Springer, vol. 135(1), pages 239-259, March.
    • Handle: RePEc:spr:annopr:v:135:y:2005:i:1:p:239-259:10.1007/s10479-005-6244-6
    DOI: 10.1007/s10479-005-6244-6
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    References listed on IDEAS

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    1. Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(1), pages 1-26.
    2. Mahmut Parlar, 1988. "Game theoretic analysis of the substitutable product inventory problem with random demands," Naval Research Logistics (NRL), John Wiley & Sons, vol. 35(3), pages 397-409, June.
    3. Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, II: Applications," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(1), pages 27-41.
    4. Gérard P. Cachon & Paul H. Zipkin, 1999. "Competitive and Cooperative Inventory Policies in a Two-Stage Supply Chain," Management Science, INFORMS, vol. 45(7), pages 936-953, July.
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    Cited by:

    1. Serel, Dogan A., 2008. "Inventory and pricing decisions in a single-period problem involving risky supply," International Journal of Production Economics, Elsevier, vol. 116(1), pages 115-128, November.
    2. H Wang & W Wang & K A H Kobaccy, 2007. "Analysis and design of returns policies from a supplier's perspective," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 58(3), pages 391-401, March.
    3. Yevgenia Mikhaylidi & Hussein Naseraldin & Liron Yedidsion, 2015. "Operations scheduling under electricity time-varying prices," International Journal of Production Research, Taylor & Francis Journals, vol. 53(23), pages 7136-7157, December.
    4. Jie Wei & Jing Zhao, 2016. "Pricing decisions for substitutable products with horizontal and vertical competition in fuzzy environments," Annals of Operations Research, Springer, vol. 242(2), pages 505-528, July.
    5. Forgionne, Guisseppi & Guo, Zhiling, 2009. "Internal supply chain coordination in the electric utility industry," European Journal of Operational Research, Elsevier, vol. 196(2), pages 619-627, July.

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