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Competition and Structure in Serial Supply Chains with Deterministic Demand

Competition and Structure in Serial Supply Chains with Deterministic Demand Supply chains often consist of several tiers, with different numbers of firms competing at each tier. A major determinant of the structure of supply chains is the cost structure associated with the underlying manufacturing process. In this paper, we examine the impact of fixed and variable costs on the structure and competitiveness of supply chains with a serial structure and price-sensitive linear deterministic demand. The entry stage is modeled as a simultaneous game, where the players take the outcomes of the subsequent post-entry (Cournot) competition into account in making their entry decisions. We derive expressions for prices and production quantities as functions of the number of entrants at each tier of a multitier chain. We characterize viability and stability of supply-chain structures and show, using lattice arguments, that there is always an equilibrium structure in pure strategies in the entry game. Finally, we examine the effects of vertical integration in the two-tier case. Altogether, the paper provides a framework for comparing a variety of supply-chain structures and for studying how they are affected by cost structures and by the number of entrants throughout the chain. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Management Science INFORMS

Competition and Structure in Serial Supply Chains with Deterministic Demand

Management Science , Volume 47 (7): 13 – Jul 1, 2001
13 pages

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References (23)

Publisher
INFORMS
Copyright
Copyright © INFORMS
Subject
Research Article
ISSN
0025-1909
eISSN
1526-5501
DOI
10.1287/mnsc.47.7.966.9799
Publisher site
See Article on Publisher Site

Abstract

Supply chains often consist of several tiers, with different numbers of firms competing at each tier. A major determinant of the structure of supply chains is the cost structure associated with the underlying manufacturing process. In this paper, we examine the impact of fixed and variable costs on the structure and competitiveness of supply chains with a serial structure and price-sensitive linear deterministic demand. The entry stage is modeled as a simultaneous game, where the players take the outcomes of the subsequent post-entry (Cournot) competition into account in making their entry decisions. We derive expressions for prices and production quantities as functions of the number of entrants at each tier of a multitier chain. We characterize viability and stability of supply-chain structures and show, using lattice arguments, that there is always an equilibrium structure in pure strategies in the entry game. Finally, we examine the effects of vertical integration in the two-tier case. Altogether, the paper provides a framework for comparing a variety of supply-chain structures and for studying how they are affected by cost structures and by the number of entrants throughout the chain.

Journal

Management ScienceINFORMS

Published: Jul 1, 2001

Keywords: Keywords : Supply Chains ; Competition ; Pricing ; Production ; Entry ; Fixed Costs

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