TY - JOUR
T1 - Vertical integration with endogenous contract leadership
T2 - Stability and fair profit allocation
AU - Kumoi, Yuki
AU - Matsubayashi, Nobuo
N1 - Funding Information:
We thank the Editor, Lorenzo Peccati, and two anonymous referees for helpful comments. The second author is supported by the Grants-in-Aid for Scientific Research (C) 24510201 of the Ministry of Education, Culture, Sports, Science and Technology of Japan.
PY - 2014/10/1
Y1 - 2014/10/1
N2 - This paper studies vertical integration in serial supply chains with a wholesale price contract. We consider a business environment where the contracting leader may be endogenously changed before and after forming the integration. A cooperative game is formulated to normatively analyze the stable and fair profit allocations under the grand coalition in such an environment. Our main result demonstrates that vertical integration is stable when all members are pessimistic in the sense that they are sure that they will not become the contracting leader if they deviate from the grand coalition. We find that in this case, the grand coalition's profit must be allocated more to the retailer and the members with higher costs. Nevertheless, we also show the conditions under which the upstream manufacturer can have strong power as in traditional supply chains.
AB - This paper studies vertical integration in serial supply chains with a wholesale price contract. We consider a business environment where the contracting leader may be endogenously changed before and after forming the integration. A cooperative game is formulated to normatively analyze the stable and fair profit allocations under the grand coalition in such an environment. Our main result demonstrates that vertical integration is stable when all members are pessimistic in the sense that they are sure that they will not become the contracting leader if they deviate from the grand coalition. We find that in this case, the grand coalition's profit must be allocated more to the retailer and the members with higher costs. Nevertheless, we also show the conditions under which the upstream manufacturer can have strong power as in traditional supply chains.
KW - Cooperative game
KW - Core allocation
KW - Economics
KW - Leader position
KW - Vertical integration
UR - http://www.scopus.com/inward/record.url?scp=84901238203&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84901238203&partnerID=8YFLogxK
U2 - 10.1016/j.ejor.2014.03.022
DO - 10.1016/j.ejor.2014.03.022
M3 - Article
AN - SCOPUS:84901238203
SN - 0377-2217
VL - 238
SP - 221
EP - 232
JO - European Journal of Operational Research
JF - European Journal of Operational Research
IS - 1
ER -