James R. Bradley - Publications
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| Supplier-Manufacturer Relationships Under Force-Compliance Contracts | |
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Natalia Golovachkina, and James R. Bradley. |
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| We consider a contract for options between a supplier and a manufacturer in the presence of a spot market with uncertain spot price, limited supplier capacity, and where the manufacturer must fulfill the stochastic demand of a downstream supply-chain link in full. We model the contract negotiation as a two-stage Stackelberg game in which the supplier is the leader. We derive a closed-form expression for the optimal number of options that the manufacturer should purchase, and show the (unrestrictive) conditions under which the supplier's profit is unimodal in the reservation and exercise prices. We make observations based on analytical results and numerical experimentation to assess when such a contract is incentive compatible and effective. The contract ``practically'' coordinates the channel when the supplier is competitive and the spot market margin is large. | |
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