Leadership and competition in network supply chains

Journal Article (Journal Article)

This paper considers network supply chains with price dependent demand by modelling them as large acyclic networks. Such large networks are common in the automobile and apparel industries. We develop a model to analyze the effect of these large-scale problems involving long sequences of contracts, and show that contract leadership, as well as leader position in the network, affect the performance of the entire supply chain. We generalize Spengler (Spengler, J. 1950. Vertical integration and anti-trust policy. J. Political Econom. 58 347-352) to a game on a "contract tree" for a particular supply chain and extend the concept of double marginalization so that it can be applied in the form of a transformation to each contract that is offered by one member to another in the "contract tree." We construct an algorithm to find the equilibrium solution, and derive the optimal location of the leader ("optimal" being the leader location that maximizes total supply chain profits). Our work formalizes many intuitive insights; for example, member profits are determined by systemwide rather than individual costs. Finally, we model Cournot competition between competing supply chains (both two heterogeneous trees and multiple identical trees) and show the effect of changes in leader position as well as cost structure on the equilibrium. © 2008 INFORMS.

Full Text

Duke Authors

Cited Authors

  • Majumder, P; Srinivasan, A

Published Date

  • June 1, 2008

Published In

Volume / Issue

  • 54 / 6

Start / End Page

  • 1189 - 1204

Electronic International Standard Serial Number (EISSN)

  • 1526-5501

International Standard Serial Number (ISSN)

  • 0025-1909

Digital Object Identifier (DOI)

  • 10.1287/mnsc.1070.0752

Citation Source

  • Scopus