Advertisement

Annals of Operations Research

, Volume 257, Issue 1–2, pp 395–421 | Cite as

Analysis of market competition and information asymmetry on selling strategies

  • Weili Xue
  • Jiaojiao Zuo
  • Xiaolin Xu
Article

Abstract

In this paper, we consider the seller’s selling strategies in a supply chain consisting of one supplier and multiple retailers, who compete in the same consumer market. The production lead time is relatively long compared to the selling season. Therefore, the supplier can choose to sell the products either before production begins (i.e., advance sale) or after production finishes (i.e. regular sale). Different to existing literature, we analyze the selling strategies in a more realistic environment where each buyer has a private demand signal about the consumer market at the beginning of the selling season. Three different scenarios (i.e., the monopoly retailer, the competing retailers with information sharing, and the competing retailers without information sharing) are analyzed to study the effect of competition and information asymmetry on the supplier’s selling strategy. In each scenario, we establish the equilibrium result and investigate how the competition and information asymmetry affect the supply chain and its each party’s profits with the underlying reason explained. Our main findings include: (1) the supplier is optimal to adopt regular sale when the retailers form as a monopoly retailer, or when the retailers competing with each other with demand information sharing; (2) he prefers advance sale when facing competing retailers with private information; (3) competition and private information also influence the retailers’ and the supply chain’s preferences on the supplier’s sale strategies. Moreover, when the retailers have private information under competition, we find interestingly that (1) the supplier’s profit is increasing in the information precision under advance sale, while it is not affected by information precision under regular sale; and (2) the retailers’ profits may decrease in the information precision under regular sale.

Keywords

Selling strategy Cournot competition Information asymmetry 

Notes

Acknowledgments

The authors thank the editor and three anonymous referees for their constructive comments and suggestions. The first author was partially supported by the National Natural Science Foundation of China (Nos. 71301023, 71390333), the Humanities and Social Sciences Foundation of Ministry of Education of China (No. 13YJC630197), and the Basic Research Foundation (Natural Science) of Jiangsu Province (No. BK20130582). The third author was partially supported by the National Natural Science Foundation of China (Nos. 71471085, 71171105), and the One-to-one Overseas Scholar Supporting Grant of School of Management, Nanjing University.

References

  1. Anand, K., Anupindi, R. & Bassok, Y. (2001). Strategic inventories in procurement contracts. University of Pennsylvania working paper. Philadelphia, PA.Google Scholar
  2. Anand, K. S., & Goyal, M. (2009). Strategic information management under leakage in a supply chain. Management Science, 55(3), 438–452.CrossRefGoogle Scholar
  3. Anupindi, R., & Jiang, L. (2008). Capacity investment under postponement strategies, market competition, and demand uncertainty. Management Science, 54(11), 1876–1890.CrossRefGoogle Scholar
  4. Aumann, R. J. (1964). Markets with a continuum of traders. Econometrica: Journal of the Econometric Society, 32(1/2), 39–50.Google Scholar
  5. Cachon, G. P. (2004). The allocation of inventory risk in a supply chain: Push, pull, and advance-purchase discount contracts. Management Science, 50(2), 222–238.CrossRefGoogle Scholar
  6. Cachon, G., & Larivire, M. (1999). Capacity choice and allocation: strategic behavior and supply chain performance. Management Science, 45(8), 1091–1108.CrossRefGoogle Scholar
  7. Cho, S. H., & Tang, C. S. (2013). Advance selling in a supply chain under uncertain supply and demand. Manufacturing and Service Operations Management, 15(2), 305–319.CrossRefGoogle Scholar
  8. Choi, T. M., Li, L., & Wei, Y. (2013). Will a supplier benefit from sharing good information with a retailer? Decision Support Systems, 56, 131–139.CrossRefGoogle Scholar
  9. Choi, T. M., Li, D., & Yan, H. M. (2003). Optimal two-stage ordering policy with bayesian information updating. Journal of Operations Research Society, 54, 846–859.CrossRefGoogle Scholar
  10. Cvsa, V., & Gilbert, S. M. (2002). Strategic commitment versus postponement in a two-tier supply chain. European Journal of Operational Research, 141(3), 526–543.CrossRefGoogle Scholar
  11. Dong, L., & Zhu, K. (2007). Two-wholesale-price contracts: push, pull, and advance-purchase discount contracts. Manufacturing and Service Operations Management, 9(3), 291–311.CrossRefGoogle Scholar
  12. Erhun, F., Keskinokak, P. & Tayur, S. (2001). Sequential procurement in a capacitated supply chain facing uncertain demand. Working paper, Graduate School of Industrial Administration, Carnegie Mellon University, Pittsburgh, PA. http://www.gsia.cmu.edu/andrew/stayur/feryal.ps
  13. Ferguson, M. E. (2003). When to commit in a serial supply chain with forecast updating. Naval Research Logistics (NRL), 50(8), 917–936.CrossRefGoogle Scholar
  14. Ferguson, M. E., DeCroix, G. A., & Zipkin, P. H. (2005). Commitment decisions with partial information updating. Naval Research Logistics (NRL), 52(8), 780–795.CrossRefGoogle Scholar
  15. Gilbert, S. M., & Cvsa, V. (2003). Strategic commitment to price to stimulate downstream innovation in a supply chain. European Journal of Operational Research, 150(3), 617–639.CrossRefGoogle Scholar
  16. Goyal, M., & Netessine, S. (2007). Strategic technology choice and capacity investment under demand uncertainty. Management Science, 53(2), 192–207.CrossRefGoogle Scholar
  17. Ha, A. Y., Tong, S., & Zhang, H. (2011). Sharing demand information in competing supply chains with production diseconomies. Management Science, 57(3), 566–581.CrossRefGoogle Scholar
  18. Kreps, D. M., & Scheinkman, J. A. (1983). Quantity precommitment and Bertrand competition yield Cournot outcomes. The Bell Journal of Economics, 14(2), 326–337.Google Scholar
  19. Lagerlf, J. N. (2007). Insisting on a non-negative price: oligopoly, uncertainty, welfare, and multiple equilibria. International Journal of Industrial Organization, 25(4), 861–875.CrossRefGoogle Scholar
  20. Lariviere, M. A., & Porteus, E. L. (2001). Selling to the newsvendor: An analysis of price-only contracts. Manufacturing and Service Operations Management, 3(4), 293–305.CrossRefGoogle Scholar
  21. Li, L., McKelvey, R. D., & Page, T. (1987). Optimal research for Cournot oligopolists. Journal of Economic Theory, 42(1), 140–166.CrossRefGoogle Scholar
  22. Li, L., & Zhang, H. (2008). Confidentiality and information sharing in supply chain coordination. Management Science, 54(8), 1467–1481.CrossRefGoogle Scholar
  23. Li, T., Tong, L., & Zhang, H. (2014). Transparency of information acquisition in a supply chain. Manufacturing and Service Operations Management, 16(3), 412–424.CrossRefGoogle Scholar
  24. Novshek, W., & Sonnenschein, H. (1982). Fulfilled expectations Cournot duopoly with information acquisition and release. The Bell Journal of Economics, 13(1), 214–218.Google Scholar
  25. Shin, H., & Tunca, T. I. (2010). Do firms invest in forecasting efficiently? The effect of competition on demand forecast investments and supply chain coordination. Operations Research, 58(6), 1592–1610.CrossRefGoogle Scholar
  26. Taylor, T. (2001). Sale timing in a supply chain: When to sell to the retailer. Manufacturing and Service Operations Management, 8(1), 23–42.CrossRefGoogle Scholar
  27. Taylor, T. A., & Xiao, W. (2010). Does a manufacturer benefit from selling to a better-forecasting retailer? Management Science, 56(9), 1584–1598.CrossRefGoogle Scholar
  28. Vives, X. (1988). Aggregation of information in large Cournot markets. Econometrica: Journal of the Econometric Society, 56(4), 851–876.Google Scholar
  29. Vives, X. (2007). Information and learning in markets. Princeton: Princeton University Press.Google Scholar
  30. Wang, T., Thomas, D. J., & Rudi, N. (2014). The effect of competition on the efficient-responsive choice. Production and Operations Management, 23(5), 829–846.CrossRefGoogle Scholar
  31. Wu, X., & Zhang, F. (2014). Home or overseas? An analysis of sourcing strategies under competition. Management Science, 60(5), 1223–1240.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.School of Economics and ManagementSoutheast UniversityNanjingChina
  2. 2.School of BusinessNanjing UniversityNanjingChina

Personalised recommendations