Analysis of Asymmetric Quantity Commitment in Decentralized Supply Chains

Zhaoqiong Qin,Robert Russell,Wen-Chyuan Chiang

doi:10.4018/ijoris.20210401.oa5

Abstract

Quantity commitment chosen by firms in competition has been demonstrated by previous studies to mitigate price competition. This study demonstrates that asymmetric quantity commitment can always arise when one firm (e-tailer) shortens lead times or adopts just-in-time systems to circumvent quantity commitment while another firm (retailer) does not. To study the asymmetric quantity commitment in decentralization, a multi-stage game is analyzed, and backward induction is adopted. The authors find that the retailer always adopts the quantity commitment in the decentralization to achieve a higher profit.

Highlights

Quantity commitment has attracted much attention in the academic community and in industry practices to mitigate price competition
This study demonstrates that asymmetric quantity commitment can always arise when one firm (e-tailer) shortens lead times or adopts just-in-time systems to circumvent quantity commitment while another firm does not
In contrast to Nasser and Turcic (2016), we focus on the model in which only one firm makes a decision whether to commit to the quantity or not while the other one, which shortens lead times, or adopts just-in-time systems to circumvent quantity commitment, does not make a quantity commitment where the heterogeneous consumers are uniformly distributed

Summary

INTRODUCTION

Quantity commitment has attracted much attention in the academic community and in industry practices to mitigate price competition. We find that the retailer always chooses to commit to a specific quantity in equilibrium regardless of the product differentiation from the two firms when the retailer and e-tailer are in a decentralized supply chain. This result demonstrates that quantity commitment is popular when firms are in competition and it allows both firms to mitigate intense price competition. Our work extends the literature related to the quantity commitment problem by addressing the following research questions: How does the asymmetric quantity commitment affect the pricing strategies and further the profits of brick-mortar retailing store (retailer) and e-tailing store (e-tailer) in the competition? Equation (4) shows that the e-tailer’s profit πe is the product of the price pe and demand ( ) De pr , pe which is the function of pr and pe shown in Equation (2)

When the retailer chooses not to commit to any quantity:

Tie-breaking quantity decision

CONCLUSION