Commitment Option Contract Selection

Abir Trabelsi, Hiroaki Matsukawa

Research output: Contribution to journalArticlepeer-review


This paper considers an option contract in a two-stage two suppliers - one buyer supply chain (SC) when market demand is stochastic. The suppliers compete by offering a commitment option contract to the buyer. The contract is composed of three prices. It allows the buyer to purchase a firm quantity and reserve options before knowing the exact market demand. After realizing the exact demand, the buyer can choose the number of options to exercise. The aim of this paper is to determine an optimal ordering and selection strategy for the buyer. It also determines an optimal bidding strategy for the suppliers. Furthermore, this contract will be compared to a pure option contract. These contracts are justified through numerical examination, and it was found that buyers prefer the lower-cost products as as to satisfy the demand with a higher realization probability. Furthermore, it was found that in equilibrium, local suppliers earn profit from the exercised options, whereas overseas suppliers earn profit from the reserved options. The paper also shows that the commitment option price provides suppliers with a greater profit in comparison to a pure option contract under the same conditions.

Original languageEnglish
Pages (from-to)245-258
Number of pages14
JournalJournal of Japan Industrial Management Association
Issue number4 E
Publication statusPublished - 2021


  • Bidding competition
  • Contract selection
  • Option contracts

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Applied Mathematics


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