Incentives and commonality in a decentralized multiproduct assembly system

Journal Article (Journal Article)

In this paper, we explore the impact of decentralized decision making on the behavior of multiproduct assembly systems. Specifically, we consider a system where three components (two product specific and one common) are used to produce two end products to satisfy stochastic customer demands. We study the system under both centralized and decentralized decision making. In the decentralized system, we prove that for any set of wholesale prices, there exists a unique Paretooptimal equilibrium in the suppliers' capacity game. We show that the assembler's optimal wholesale prices lie in one of two regions-one leads to capacity imbalance and one does not. We use these results to derive insights regarding the inefficiencies that decentralization can cause in such systems. In particular, several of our findings indicate that outsourcing the management of component supplies may inhibit the use of operational hedging approaches for managing uncertainty. © 2007 INFORMS.

Full Text

Duke Authors

Cited Authors

  • Bernstein, F; Decroix, GA; Wang, Y

Published Date

  • July 1, 2007

Published In

Volume / Issue

  • 55 / 4

Start / End Page

  • 630 - 646

Electronic International Standard Serial Number (EISSN)

  • 1526-5463

International Standard Serial Number (ISSN)

  • 0030-364X

Digital Object Identifier (DOI)

  • 10.1287/opre.1070.0402

Citation Source

  • Scopus