Bargaining for Supply Chain Revenue Allocation
Hermel
Dror
Lecturer
Ariel
University
Center
of
Samaria
UBC-Sauder
Vancouver,
British
Columbia
dror.hermel@sauder.ubc.ca
Friday, September 6th, 2013
1pm – 2:00pm*
Carl A. Pollock Hall, Room 3623
Abstract
The issue of coordination in decentralized supply chains has received much attention in the operations management literature. Specifically, contracts are suggested as mechanisms to achieve this coordination. The issue of how the details of the contracts are agreed upon is usually not addressed but empirical evidence, along with common knowledge of practice, suggests that negotiations are usually used to construct these contracts.
We present a negotiation model to arrive at profit sharing in a supply chain with a pivotal agent (e.g. retailer) who interacts with N non-pivotal agents (e.g. suppliers). The interaction between the agents is such that communication between the non-pivotal agents may, or may not be possible – for example these can be suppliers of complementary or partially substitutable products.
We study the two settings which differ, mainly, in the non-pivotal-agents’ ability to communicate amongst themselves, possibly coordinating their actions. For each of the two possible settings we arrive at a prescribed allocation scheme using an adaptation of the Nash bargaining framework where we focus on endogenous generation of the disagreement outcomes.
Surprisingly, our results have lucrative properties beyond the axioms satisfied by any Nash bargaining solution, For the non-communicating setting, our result is a simple formula that prescribes the resulting allocations. We show, that this allocation constitutes a Nash-Nash equilibrium for an inter-related network of bargaining problems that are used to model the different interactions in the supply chain. For the communicating case we show that, surprisingly, our allocation, which is a Nash bargaining solution, equals the Shapley value of a cooperative game related to our setting.
Biographical Sketch
Hermel is currently an assistant professor at Ariel University.His main area of research is; Applications of game theory in operations and supply chain management, bargaining, negotiating, arbitration and revenue management.