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Impact of bargaining power on supply chain profit allocation: a game-theoretic study

Impact of bargaining power on supply chain profit allocation: a game-theoretic study The purpose of this paper is to study the impact of bargaining powers of firms in supply chain coordination. It studies selected aspects of bargaining powers, namely, impatience, breakdown probability and outside options, and uses a bargaining-theoretic approach to analyze surplus allocation in a coordinated supply chain.Design/methodology/approachThis paper proposes one-supplier one-buyer infinite horizon supply chain coordination game, where suppliers and buyers negotiate for the allocation of supply chain surplus arising out of supply chain coordination. Various aspects of the bargaining power of the negotiating parties are modeled and the paper studies impact of power levels on the results of the bargaining game.FindingsA significance of impatience on the bargaining process and the surplus split has been established. This paper also demonstrates a rather counter-intuitive aspect of bargaining that the impatience (as perceived by the other party) can improve the bargaining position and therefore share of profits.Research limitations/implicationsThis paper has limited its analysis to three key components of bargaining power. Future works can study other aspects of bargaining power, namely information asymmetry, learning curve, inside options, etc. Further, the paper has considered an infinite horizon model – this assumption can be relaxed in future research.Practical implicationsEquations to derive optimal split of the surplus have been derived and can be leveraged to design an autonomous bargaining agent to discover equilibrium profit splits in a cloud or e-commerce setting. Further, insights from this paper can be leveraged by managers to understand their relative bargaining power and drive to obtain the best profit split.Originality/valueThis paper establishes that impatience (in terms of counter-offer probability) has a significant impact on the bargaining position and on the split of the surplus that the firm can get for themselves. It establishes the advantage of higher levels of impatience, provided the other party recognizes the impatience and factors it in their decision-making process. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Advances in Management Research Emerald Publishing

Impact of bargaining power on supply chain profit allocation: a game-theoretic study

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References (53)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0972-7981
DOI
10.1108/jamr-10-2018-0096
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to study the impact of bargaining powers of firms in supply chain coordination. It studies selected aspects of bargaining powers, namely, impatience, breakdown probability and outside options, and uses a bargaining-theoretic approach to analyze surplus allocation in a coordinated supply chain.Design/methodology/approachThis paper proposes one-supplier one-buyer infinite horizon supply chain coordination game, where suppliers and buyers negotiate for the allocation of supply chain surplus arising out of supply chain coordination. Various aspects of the bargaining power of the negotiating parties are modeled and the paper studies impact of power levels on the results of the bargaining game.FindingsA significance of impatience on the bargaining process and the surplus split has been established. This paper also demonstrates a rather counter-intuitive aspect of bargaining that the impatience (as perceived by the other party) can improve the bargaining position and therefore share of profits.Research limitations/implicationsThis paper has limited its analysis to three key components of bargaining power. Future works can study other aspects of bargaining power, namely information asymmetry, learning curve, inside options, etc. Further, the paper has considered an infinite horizon model – this assumption can be relaxed in future research.Practical implicationsEquations to derive optimal split of the surplus have been derived and can be leveraged to design an autonomous bargaining agent to discover equilibrium profit splits in a cloud or e-commerce setting. Further, insights from this paper can be leveraged by managers to understand their relative bargaining power and drive to obtain the best profit split.Originality/valueThis paper establishes that impatience (in terms of counter-offer probability) has a significant impact on the bargaining position and on the split of the surplus that the firm can get for themselves. It establishes the advantage of higher levels of impatience, provided the other party recognizes the impatience and factors it in their decision-making process.

Journal

Journal of Advances in Management ResearchEmerald Publishing

Published: Jul 11, 2019

Keywords: Negotiation; Supply chain management; Game theory; Channel coordination

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