Joint forward contract negotiation: The role of B2B procurement platforms

Abstract

B2B procurement platforms operate by aggregating the orders of small and medium downstream buyers to acquire forward contracts with selected upstream suppliers through negotiation. This paper studies the value of and the suitable market environment for this type of start-ups. We find that a unique equilibrium forward contract can be obtained if spot price volatility is sufficiently large, an increase in buyer participation cannot always lead to a favorable contract price for participating buyers. Furthermore, when buyer-side bargaining power cannot be improved, the utility gain of an individual buyer from a forward contract declines as buyer participation increases, while that of the supplier initially increases and then decreases. By contrast, when bargaining power is moderately improved, an increase in buyer participation may benefit the supplier and participating buyers. We further show that the equilibrium participation increases in spot price volatility and supplier’s capacity but decreases in downstream demand uncertainty.