Chain-to-Chain Competition under Demand Uncertainty
Owen Q.Wu∗
Sauder School of Business,University of British Columbia,Canada
Hong Chen†
Cheung Kong Graduate School of Business,China
November1,2003
Abstract
The type of industry we want to analyze in this paper is comprid of multiple manufactur-ers,each lling differentiated products through multiple exclusive retailers.The retailers are faced withfixed market prices but uncertain demands.Industries falling in this category include telecommunication industry,fast food chains,gasoline,etc.The manufacturers competition,the retailers competition and the vertical interaction between them are all intertwined with each other.We examine the relations between supply chain structures,product differentiation,and demand uncertainty.The paper makes two contributi
ons.First,we link the analytical market-ing literature on channel structures to the supply chain literature on coordination under demand uncertainty.Second,we derive explicit equilibria of different supply chain structures,compare the implications of them,and examine the impact of demand uncertainty.
Keywords:Newsvendor;Uncertainty;Competition;Coordination;Integration;Decentraliza-toin;Game Theory.
∗Supported in part by University Graduate Fellowship,University of British Columbia(Canada).
†Supported in part by a grant from NSFC(China).
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1Introduction
In many industries,the competition betweenfirms has become chain-to-chain or channel-to-channel competition.This has happened in the telecommunication industry in particular,where the chains may be differentiated by technologies.It is clear that in such competition,either an upperstream firm or a downstreamfirm in one chain competes against not only her correspondingfirm in the other chain,but
also the entire other chain.The performance of anyfirm in the chain will depend on the performance of the entire chain.However,it is not obvious that in such competition,the industry will be better offor a chain will be better offif one or all of the chains in the industry are integrated or coordinated.
In this paper,we consider an industry with two competing supply chains.Each chain has one manufacturer with two exclusive retailers.Two manufacturers produce in general two different products,which can be either substitutable or complementary.Retailers are modelled as newsven-
tion at one retailer is affected by the product quantity available at the other retailers.Therefore, the competition is esntially the quantity competition.We examine three industry organization structures:both chains are integrated,both chains are decentralized,and one chain is integrated and the other is decentralized.The structures are also compared against the ba scenario of an integrated industry where both chains belong to a social planner.The key question is which and when a particular organization structure outperforms others,what is an equilibrium structure,and what is the impact of demand uncertainty.
圣物之盾
A number of industries fall into our model.In the telecom industry(particularly the mobile telecom indu
stry),each telecom equipment manufacturer(such as Lucent Technologies or Northern Telecom)may form a chain with its downstream telecom rvice companies who u its equipment. Becau of different technologies,telecom rvice providers tend to purcha the equipment from the same telecom equipment manufacturer for compatibility.This is particularly true in the mobile telecommunication industry in China.The telecom rvice providers can be modelled as news-vendors,and the rvice capacity of a telecom rvice provider is its order quantity(or equivalently the inventory of the rvice capacity)from the manufacturer.It is clear that unud capacity is lost.The end urs choo retailers bad on the price and the quality of rvice.A key quality of rvice measure relates directly to the inventory(of the rvice capacity).The retailer prices(or
黑枸杞2
the rvice charge rates)arefixed in a short time period;this would be particularly true when the telecom industry is regulated as it is in China.The competition is mostly on the quality of rvice. The other examples include fast food chains,soft drinks,gasoline,etc.
The chain-to-chain or the channel-to-channel competition has been addresd in the analytical marketing literature.McGuire and Staelin(1983)analyze various retail distribution structures in the co
ntext of two competing manufacturers,each lling her products through an independent retailer.They show that a strategic reason for manufacturers to u intermediaries is that doing so shields themlves from possibly ruinous price competition.Coughlan(1985)extends this rearch to a more general demand function and applied it to the electronic industry.Moorthy(1988) links the value of decentralization to the concept of strategic interaction.Atkins and Zhao(2002) endogenize the product differentiation and examine the supply chain structure under both price and rvice competition.
There are also models for the industry context with retailers carrying an assortment of prod-ucts from multiple manufacturers.Choi(1991)considers two manufacturers lling their products through a common retailer.Lee and Staelin(1997)and Trivedi(1998)generalize the above work to a competitive environment with two manufacturers and two common retailers.Our work is sim-ilar to the last two papers in that we also analyze the channel competition at both retailer and manufacturer levels,but we consider each manufacturer owns veral exclusive retailers rather than share the common retailers.While deterministic formulations are found prevalent in the economic and marketing literature including the cited papers above,we address the demand uncertainty and study its impact on supply chain structures.
零钱包Economists have also considered the impact of demand uncertainty on industrial structures.See Kranton and Minehart(2000)and the references therein.Kranton and Minehart(2000)compare vertical integration versus networks.Vertically integratedfirms make their own inputs,whilefirms in networks procure from veral suppliers who,in turn,ll to veral networkfirms.They show thatfirms are likely to form networks when they experience large idiosyncratic demand shocks. However,they model the demand uncertainty as incorporated infirms’random valuation of the supply.Thus there is no inventory decision in their framework.
初三毕业作文In the inventory literature,the single-period inventory problem with stochastic demand is known as the newsvendor problem,which is tofind a procurement quantity that maximizes the expected profit.Competitive version of the newsvendor problem has been developed in the literature,in
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which inventory is usually the sole dimension of competition.Parlar(1988)models a duopoly of two newsvendors lling substitutable products.When either of the newsvendors’stock is out,a fixed fraction of the excess demand switches to the other.Lippman and McCardle(1997)start with aggregate industry demand and specify a variety of rules to split the realized aggregate demand am
ong thefirms.Mahajan and van Ryzin(2001)model the demand as derived from dynamic consumer choice.There are also simple allocation rules that lead to more explicit solution.For example,Cachon(2002)considers proportional demand allocation rule and reaches qualitatively consistent insights:“Competition makes the retailers order more inventory becau of the demand stealing effect:each retailer ignores the fact that ordering more means the other retailers demands If retailers ll complements,rather than substitutes,then the demand stealing effect is reverd.”
While the above authors noticed the demand stealing effect,Dana and Petruzzi(2001)at-tempted at modelling the demand stimulating effect:consumers are more likely to purcha from stores that have fewer stockouts.They provides a consumer choice model in which consumers maximize expected utility by taking into account the inventory available at thefirm.百伯
In contrast to the previous work,we model the demand by a linear function of the inventory quantities.This simpler formulation makes it possible to model both stealing and stimulating effects and both substitutable and complementary products.Our linear model can be regarded as an approximation to the actual demand system.In fact,since consumer behaviors are far too complicated to analyze completely,all the preceding consumer choices models are approximations fo
r some particular aspects of consumers’preference.In addition,our study aims to compare the implications of various supply chain structures.Our demand model makes this problem tractable. Indeed,the past work(Parlar(1988),Lippman and McCardle(1997),Mahajan and van Ryzin (2001),Cachon(2002))indicated the difficulty in obtaining an explicit formula for an equilibria, let alone compare the equilibria among different supply chain structures.
There is a substantial literature that examines supply chain coordination issues with or without considering competition.See Cachon(2002)for a recent survey.Supply chain coordination is also included in our model.We study how a manufacturer can u buyback contract to coordinate her chain under competition at both retail and manufacturers level.
A substantial amount of works in the operations management literature assumes that the de-mand is innsitive to the price,which we also make in our paper.McGuire and Staelin(1983)and
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their following work show that manufacturers may deliberately decentralize their supply chains in order to buffer against the price competition.Withfixed price assumption,this strategic behavior no longer exists,which allows us to focus on the other effects such as the demand uncertainty more effe
ctively.In addition,we assume no transshipment between the retailers.For models with both price and inventory competition,e Bernstein and Federgruen(2001),and for models with transshipment after the realization of demand,e Anupindi,Bassok and Zemel(2001).
The paper is organized as follows.In the next ction,we prent our basic model with two supply chains,each consisting of a manufacturer and two retailers.In ction3,we consider a ba scenario where the two supply chains are controlled by a social planner.Our analysis leads to a benchmark solution for the industry,and forms a basis for comparison.Section4considers various organization structures with two competing supply chains including two integrated chains, one integrated and one decentralized chain,and two decentralized chains.For each ca,we obtain their equilibrium order quantities and profits.In ction5,through comparing the equilibria for various supply chain structures,we obtain the equilibrium structure for the competing supply chains,and examine the impact of demand uncertainty.Section6concludes the paper.
东方大厦
你可以的英文2The Model
We analyze two supply chains.Each chain has one manufacturer with two exclusive retailers.The two manufacturers produce differentiated products.We will index the two chains or equivalently the t
wo manufacturers by i=1,2,and index the four retailers by(i,j),i,j=1,2.We assume that retailers(i,1)and(i,2),which are exclusive for manufacturer i,are identical.
are assumed to hold most of the market power in the relation with their retailers; production costs are c1and c2,and unit salvage values are v1and v2.
The prices for the two products,p1and p2,are assumed to befixed.Denote by q ij the inventory at retailer(i,j),i,j=1,2.The retailers are faced with random demands.The demand for retailer (i,j)is described by
D ij=ξij+αi q ij−βi q i,3−j−1
2
γ3−i(q3−i,1+q3−i,2),i,j=1,2,(1)
辛德勒的名单观后感which has four components.Thefirst component,ξij,is a nonnegative random variable,which we assume has a continuous cumulative distribution function F i and density function f i.For the convenience of analysis,we assume that F−1
i
is continuous.The other three components measure
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