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Advance Selling in a Supply Chain Under Uncertain Supply and Demand

Advance Selling in a Supply Chain Under Uncertain Supply and Demand We examine three selling strategies of a manufacturer who produces and sells a seasonal product to a retailer under uncertain supply and demand: (1) advance sellingpresells the product before observing uncertain supply and demand; (2) regular sellingsells the product after supply and demand are realized; and (3) dynamic sellingcombines both advance and regular selling strategies. We model the first two strategies as single-period Stackelberg games, and we model the last strategy as a two-period dynamic Stackelberg game. By comparing the equilibria of these games, we formalize our understanding of several intuitive results. For example, from the manufacturer's perspective, dynamic selling dominates advance selling and regular selling: having more selling opportunities is beneficial to the manufacturer. However, from the retailer's perspective, we find two counterintuitive results: (a) postponing the ordering decision can be detrimentalthe retailer can be worse off under regular selling than under advance selling; and (b) more ordering opportunities can be detrimentalthe retailer can be worse off under dynamic selling than under advance selling. In addition, we analyze the impact of supply and demand uncertainties under these strategies and find that both types of uncertainties can be beneficial to the retailer. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Manufacturing & Service Operations Management INFORMS

Advance Selling in a Supply Chain Under Uncertain Supply and Demand

15 pages

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Publisher
INFORMS
Copyright
Copyright © INFORMS
Subject
Research Article
ISSN
1523-4614
eISSN
1526-5498
DOI
10.1287/msom.1120.0423
Publisher site
See Article on Publisher Site

Abstract

We examine three selling strategies of a manufacturer who produces and sells a seasonal product to a retailer under uncertain supply and demand: (1) advance sellingpresells the product before observing uncertain supply and demand; (2) regular sellingsells the product after supply and demand are realized; and (3) dynamic sellingcombines both advance and regular selling strategies. We model the first two strategies as single-period Stackelberg games, and we model the last strategy as a two-period dynamic Stackelberg game. By comparing the equilibria of these games, we formalize our understanding of several intuitive results. For example, from the manufacturer's perspective, dynamic selling dominates advance selling and regular selling: having more selling opportunities is beneficial to the manufacturer. However, from the retailer's perspective, we find two counterintuitive results: (a) postponing the ordering decision can be detrimentalthe retailer can be worse off under regular selling than under advance selling; and (b) more ordering opportunities can be detrimentalthe retailer can be worse off under dynamic selling than under advance selling. In addition, we analyze the impact of supply and demand uncertainties under these strategies and find that both types of uncertainties can be beneficial to the retailer.

Journal

Manufacturing & Service Operations ManagementINFORMS

Published: May 9, 2013

Keywords: Keywords : game theory ; healthcare management ; supply chain management

References