Market-Share Contracts with Vertical Externalities

2014 ◽  
Vol 5 (1-2) ◽  
pp. 1-15
Author(s):  
Yuki Amemiya ◽  
Hiroshi Kitamura ◽  
Jun Oshiro
Keyword(s):  
Social Welfare ◽  
Market Share ◽  
Wholesale Price ◽  
Double Marginalization ◽  
Vertical Relation ◽  
Dominant Supplier

AbstractWe construct a model of market-share contracts with vertical externalities. When a dominant supplier offers a linear wholesale price to a retailer, vertical externalities, well-recognized as double-marginalization problems, arise in the vertical relation. The dominant supplier facing vertical externalities charges a wholesale price that is excessively high for both the vertical relation and social welfare. Under market-share contracts, the retailer can commit to increase the sales of goods produced by the dominant supplier for a lower wholesale price. We point out that this induces the vertical relation to engage in market-share contracts even in the absence of exclusionary effects in the upstream market. We also show that such contracts mitigate vertical externalities and improve social welfare.

Implications of Price Matching in Supply Chain Negotiation

2021 ◽  
Author(s):  
Weixin Shang ◽  
Gangshu (George) Cai
Keyword(s):  
Supply Chain ◽  
Social Welfare ◽  
Wholesale Price ◽  
Consumer Welfare ◽  
Problem Definition ◽  
Nash Bargaining ◽  
Price Matching ◽  
The Impact ◽  
Multiple Buyers ◽  
Wholesale Pricing

Problem definition: Few papers have explored the impact of price matching negotiation (PM), in which a channel matches its price with the resulting wholesale price bargained by another channel, on firms’ performances, consumer welfare, and social welfare, with and without supply chain coordination. Academic/practical relevance: Negotiation has been widely seen in determining both uniform and discriminatory wholesale prices, which affect outcomes of competitive supply chain practices. Methodology: To characterize the PM mechanism, we use game theory and Nash bargaining theory to compare PM with simultaneous negotiation (SN) through a common-seller two-buyer differentiated Bertrand competition model. Results: Our analysis reveals that PM can benefit the seller but hurt all buyers, which is at odds with some fair wholesale pricing clauses intending to protect buyers. Under coordination with side payments, however, all firms can conditionally benefit more from PM than from SN. Despite firms’ gains, PM leads to less consumer utility and social welfare compared with SN, unless the second buyer in PM is considerably less powerful than the first buyer. Coordination further worsens PM’s negative impact on consumer utility and social welfare. Moreover, the existence of a spot market can increase the wholesale price in PM, hurting buyers, consumers, and society. Furthermore, the qualitative results about PM remain robust under an alternative disagreement point for PM, multiple buyers, and other extensions. Managerial implications: This paper delivers insights on when price matching in supply chain wholesale price negotiation can benefit a seller, buyers, consumers, and society in a variety of scenarios. It advocates how managers can use PM to their own advantages and provides rationale to decision makers for policy regulations regarding wholesale pricing.

Does Vertical Separation Necessarily Reduce Quality Discrimination and Increase Welfare?

2012 ◽  
Vol 12 (1) ◽  
Author(s):  
Duarte Brito ◽  
Pedro Pereira ◽  
João Vareda
Keyword(s):  
Social Welfare ◽  
Vertical Separation ◽  
Double Marginalization ◽  
Welfare Impact ◽  
Quality Degradation ◽  
Degradation Effect

Abstract We investigate whether vertical separation reduces quality discrimination and increases welfare. Consider an industry consisting of a vertically integrated firm, the incumbent, and an independent retailer, the entrant, which requires access to the services of the incumbent's wholesaler. The wholesaler can discriminate against either of the retailers by supplying it an input of lower quality than its rival. We show that, in our setting, vertical separation of the incumbent reduces discrimination against the entrant's retailer, although it does not guarantee non-discrimination. Furthermore, with vertical separation, the wholesaler may discriminate against the incumbent's retailer. Vertical separation impacts social welfare through two effects. First, through the double-marginalization effect, which is negative. Second, through the quality degradation effect, which can be positive or negative. Hence, the net welfare impact of vertical separation is negative or potentially ambiguous.

scholarly journals Competition with Exclusive Contracts and Market-Share Discounts

2013 ◽  
Vol 103 (6) ◽  
pp. 2384-2411 ◽  
Author(s):  
Giacomo Calzolari ◽  
Vincenzo Denicolò
Keyword(s):  
Incomplete Information ◽  
Market Share ◽  
Competition Policy ◽  
Double Marginalization ◽  
Contractual Arrangements ◽  
Exclusive Contracts ◽  
Market Share Discounts

We analyze firms that compete by means of exclusive contracts and market-share discounts (conditional on the seller's share of customers' total purchases). With incomplete information about demand, firms have a unilateral incentive to use these contractual arrangements to better extract buyers' informational rents. However, exclusive contracts intensify competition, thus reducing prices and profits and (in all Pareto undominated equilibria) increasing welfare. Market-share discounts, by contrast, produce a double marginalization effect that leads to higher prices and harms buyers. We discuss the implications of these results for competition policy. (JEL D43, D83, D86, K21, L14, L42)

Examining Double Marginalization Effect for Innovative Product Supply Chain

2012 ◽  
Vol 3 (1) ◽  
pp. 37-52 ◽  
Author(s):  
Wenjing Shen
Keyword(s):  
Supply Chain ◽  
Wholesale Price ◽  
Limited Attention ◽  
Innovative Product ◽  
Double Marginalization ◽  
Pricing Decisions ◽  
Number Of Factors ◽  
Innovative Products ◽  
Retail Prices ◽  
Over Time

Double marginalization effect refers to the phenomenon that when both upstream and downstream firms have monopolistic power, customers pay higher retail price and firms make less profit than when the supply chain is vertically integrated (Tirole, 1988). Although double marginalization effect has been extensively studied in the context of supply chain management for mature products, very limited attention has been given to innovative products whose demand is generated through word-of-mouth effect. The authors study the pricing decisions in a supply chain that sells innovative products. Using a modified Bass diffusion model to capture demand trajectory over time, the authors identify the optimal way for the retailer and supplier to adjust prices when profit is not discounted, and also provide numerical examples when profit is discounted. The authors show that (1) when profit is not discounted the optimal retail prices are adjusted over time, while the optimal wholesale price should be kept as a constant, and (2) double marginalization effect also exists in an innovative product supply chain, but its degree depends on a number of factors, such as the innovation and imitation coefficients.

Privatization, Unemployment, and Welfare in the Harris-Todaro Model with a Mixed Duopoly

2016 ◽  
Vol 16 (4) ◽  
Author(s):  
Jiancai Pi ◽  
Jun Yin
Keyword(s):  
Social Welfare ◽  
Market Share ◽  
Unemployment Rate ◽  
Relative Degree ◽  
Mixed Duopoly ◽  
Partial Privatization ◽  
The Public ◽  
Long Run ◽  
Public Firm ◽  
Short Run

Abstract This paper explores the unemployment and welfare effects of privatization through the Harris-Todaro model with a mixed duopoly. Our approach is more generalized than the existing literature. When capital is sector-specific (i. e., it is in the short run), an increase in the degree of partial privatization will raise the unemployment rate, but the change of social welfare is conditional on the market share of the public firm and the relative degree of partial privatization. When capital is sector-mobile (i. e., it is in the long run), an increase in the degree of partial privatization will reduce the unemployment rate, but the change of social welfare is also dependent on the market share of the public firm and the relative degree of partial privatization. Our results capture the fact that the public firm and the private firm usually coexist in a competitive environment in the real world.

scholarly journals Shared Manufacturing in A Differentiated Duopoly with Capacity Constraints

2022 ◽  
Author(s):  
Junlong Chen ◽  
Chaoqun Sun ◽  
Jiali Liu
Keyword(s):  
Social Welfare ◽  
Market Share ◽  
Product Differentiation ◽  
Consumer Surplus ◽  
Cournot Competition ◽  
Capacity Constraints ◽  
Excess Capacity ◽  
Stackelberg Competition ◽  
Duopoly Model ◽  
Negative Role

Abstract This study sets up a differentiated duopoly model considering capacity constraints and shared manufacturing, investigates the equilibrium results, examines the effects of product differentiation and capacity constraints in three scenarios, and compares the equilibrium outcomes in three cases under Cournot and Stackelberg competition. We find that capacity constraints affect the relationships among product differentiation, equilibrium results, and the market share of enterprises. Shared manufacturing impacts the degree of excess capacity, profits, consumer surplus, and social welfare; however, it may sometimes play a negative role in alleviating excess capacity. Moreover, Cournot competition is a better choice for enterprises with capacity constraints compared to Stackelberg competition.

scholarly journals The Strategies of the Poverty-Alleviation Supply Chain with Government Subsidies and Cost Sharing: Government-Led or Market-Oriented?

2020 ◽  
Vol 12 (10) ◽  
pp. 4050 ◽  
Author(s):  
Kai Kang ◽  
Xinfeng Luan ◽  
Wenjing Shen ◽  
Yanfang Ma ◽  
Xuguang Wei
Keyword(s):  
Corporate Social Responsibility ◽  
Supply Chain ◽  
Social Responsibility ◽  
Social Welfare ◽  
Cost Sharing ◽  
Poverty Alleviation ◽  
Wholesale Price ◽  
Sustainable Operations ◽  
Government Subsidies ◽  
Corporate Social

Alleviating poverty is a critical problem in many developing countries such as China. In this paper, we consider a poverty-alleviation supply chain composed of one supplier in a poor area and one producer helping the supplier reduce poverty by fulfilling Corporate Social Responsibility (CSR). Our work aims at examining the impacts of government subsidies and Corporate Social Responsibility (CSR) on the poverty-alleviation operations. Four game-theoretic models are constructed and analyzed to investigate the impacts of coefficients of government subsidies and CSR cost sharing on the supplier’s and producer’s profits, social welfare growth, CSR level, wholesale price, output of the supplier, and retail price. Our findings suggest that the most effective poverty-alleviation mechanism in most cases is the combination of government subsidies and market efforts. Contrary to common beliefs that companies have to sacrifice profit for social responsibility, we show that poverty alleviation is reconcilable with profit maximization and social welfare improvement, and companies can achieve a win-win situation of both poverty alleviation and profitability. Our work provides new insights for sustainable poverty alleviation and socially sustainable operations.

scholarly journals Pricing and Safety Investment Decisions in Food Supply Chains with Government Subsidy

2021 ◽  
Vol 2021 ◽  
pp. 1-18
Author(s):  
Yanan Yu ◽  
Yong He ◽  
Melissza Salling
Keyword(s):  
Supply Chain ◽  
Food Safety ◽  
Risk Aversion ◽  
Market Share ◽  
Food Supply ◽  
Wholesale Price ◽  
Government Subsidies ◽  
The Government ◽  
Safe Food ◽  
Safety Investment

As the demand for safe food has been rapidly increasing these years, more and more stakeholders are dedicated to the safety of the food in the supply chain of this sector. To expand the market share of safe food, governments of some countries also provide subsidies to encourage food processors to invest in better food safety efforts. This paper establishes a three-stage game model between the government and a two-stage food supply chain that consists of one supplier and one processor, where the government subsidizes processors to invest in food safety efforts; furthermore, this paper determines the optimal wholesale price, marginal profit, food safety investment, and government subsidies. This paper analyzes the effects of the government subsidies and risk aversion of the food processor and introduces the mode of order quantity-based payment and demand-based payment; moreover, it also analyzes the impacts of subsidies and different payment methods on demands. The results show that suppliers can increase the market share of products by adopting the demand-based payment, but this method does not always benefit the members of the supply chain. As the processor is more risk-averse, the optimal subsidy is higher, encouraging the processor to invest in more efforts. Finally, the supplier’s profit increases with the processor’s risk aversion indicator.

Analysis of Double Marginalization Effect on the Wholesale Price Contract Coordination

2018 ◽  
Vol 35 (02) ◽  
pp. 1840005 ◽  
Author(s):  
Xin Fang
Keyword(s):  
Supply Chain ◽  
Numerical Analysis ◽  
Stackelberg Game ◽  
Wholesale Price ◽  
Revenue Sharing ◽  
Double Marginalization ◽  
Decentralized Supply Chain ◽  
Revenue Sharing Contract

Due to double marginalization effect, the wholesale price contract has been proved that it cannot coordinate a decentralized supply chain (DSC) based on the framework of Stackelberg game, in which the upstream firm acts as a leader and the downstream firm acts as a follower. Nevertheless, it has shown that the partnership between the enterprises tends to be equality. Motivated by this factor, this paper studies the coordination of wholesale price contract under the perspective of equality between enterprises. First, an innovative wholesale price contract is constructed and to prove that the constructed contract can flexibly coordinate the DSC. Second, the adaptability of the constructed contract is analyzed and compared with the revenue sharing contract, which is designed under the framework of Stackelberg game. Third, numerical analysis is calculated to verify the effectiveness and operation of the model.

Implications for pure profit, environmental impact and social welfare in a socially responsible supply chain

Kybernetes ◽  
2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Zhichao Zhang ◽  
Haiyan Xu ◽  
Zhi Liu ◽  
Yinhai Fang
Keyword(s):  
Supply Chain ◽  
Environmental Impact ◽  
Social Welfare ◽  
Wholesale Price ◽  
Revenue Sharing ◽  
Socially Responsible ◽  
Content Type ◽  
Csr Strategies ◽  
Revenue Sharing Contract ◽  
The Social

Purpose Members in a supply chain account for corporate social responsibility (CSR) in different ways. This paper considers a socially responsible supply chain in which the manufacturer innovates in a sustainable product while the retailer exhibits CSR concerns. This paper aims to investigate how socially responsible behavior, namely, sustainable innovations or CSR concerns, affects the pure profit, environmental impact and social welfare, in such a socially responsible supply chain. Design/methodology/approach This paper first constructs an integrated case as a benchmark and then develops a Manufacturer-Stackelberg game in a decentralized scenario. The pure profit, environmental impact and social welfare are confirmed and analyzed in centralized and decentralized cases. Moreover, two unique coordinating contracts, i.e. wholesale price discount contract and revenue-sharing contract, are used in this socially responsible supply chain. Findings Analytical analysis shows that, under certain conditions, the optimal CSR strategies hold for maximizing pure channel profit, minimizing environmental impact and maximizing social welfare. Whether the performance in a centralized case outnumbers that in a decentralized case depends on the CSR concerns level and environment-friendly degree of the product. In addition, it is found that a wholesale price discount contract is better for the retailer whereas a revenue-sharing contract is better for the manufacturer in pure profit to improve coordinating efficiency. Practical implications These results can offer managerial implications to the socially responsible supply chain in terms of pricing decisions, CSR strategies and sustainability innovations. Specifically, under certain conditions, placing more CSR concerns level increases pure channel profit and the social welfare. A balance between the pure profit and the social welfare is hereby achieved for the two socially responsible individuals by designing a proper contract. Originality/value To the best of the authors’ knowledge, this paper is among the first studies so far to combine the CSR concerns strategy and sustainability innovation into a socially responsible supply chain.

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