Supply Chain Management in the Presence of Secondary Market
This paper studies the impacts of online secondary markets on a supply chain. Retailers who recognize that there is a secondary market to dispose of their excess inventory, might make higher purchase quantities in the beginning of a product life cycle. On the other hand, given that there is a secondary market that one can tap into for future needs, a retailer may reduce its initial purchase quantities. We endogenously derive the optimal decisions for the retailers, and explore the impacts of the secondary market on the performance of the supply chain as a whole. Next, we explore the impact of a manufacturer’s participation in the secondary markets, together with the retailers, for a special kind of secondary market known as diversion. In addition, we study the role of the secondary market as a mechanism to capture demand information through the realized price. Lastly, we discuss managerial implications of secondary markets and offer further research directions.
Key words: Supply chain management; electronic markets; inventory.
KeywordsSupply Chain Management Order Quantity Expected Profit Secondary Market Rational Expectation
Unable to display preview. Download preview PDF.
- Bickel, P.J. and Doksum, K.A., 1977, Mathematical Statistics, olden-Day, Inc.Google Scholar
- Chen, K.Y. and Plott, C., 2002, Information Aggregation Mechanisms: Concept, Design and Implementation for a Sales Forecasting Problem, Social Science Working Paper #1131, Division of Humanities and Social Sciences, California Institute of Technology, Pasadena, California 91125, March 2002.Google Scholar
- Eppen, G. and Schrage, L., 1981, Centralized Ordering Policies in a Multi-warehouse System with Lead Times and Random Demand, in L.B. Schwarz Ed., Multi-Level Production/Inventory Control Systems: Theory and Practice, TIMS Studies in the Management Sciences, 16, NorthHolland, Amsterdam, pp. 51-68.Google Scholar
- Gallien, J. and Wein, L., 2000, Design and Analysis of a Smart Market for Industrial Procurement, Working Paper, Sloan School of Management, MIT.Google Scholar
- Hammond, J. and Raman, A., 1994, Sport Obermeyer, Ltd, Harvard Business School case, pp: 9-695-022.Google Scholar
- Hayek, F.A., 1945, The Use of Knowledge in Society, American Economic Review, 35: 519-530.Google Scholar
- Lee, H.L., Peleg, B., and Whang, S., 2004, Toyota: Demand Chain Management, Stanford case, Graduate School of Business, Stanford University.Google Scholar
- Lee, H.L., Padmanabhan, V., and Whang, S., 1997b, The Bullwhip Effect in Supply Chains, Sloan Management Review, 38 (3) Spring, 93-102.Google Scholar
- Peleg, B., and Lee, H.L., 2002, Secondary Markets for Product Diversion with Potential Manufacturer’s Intervention, Working Paper, Stanford University.Google Scholar
- Rangan, V.K., 1999, FreeMarkets Online, Harvard Business School case, 9-598-109.Google Scholar
- Whang, S., and Zou, Y., 2003, The Informational Role of the Secondary Market in a Supply Chain, Working Paper, Stanford University.Google Scholar