Vertical integration with endogenous contract leadership: Stability and fair profit allocation

Yuki Kumoi, Nobuo Matsubayashi

Research output: Contribution to journalArticle

12 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)221-232
Number of pages12
JournalEuropean Journal of Operational Research
Volume238
Issue number1
DOIs
Publication statusPublished - 2014 Oct 1

Keywords

  • Cooperative game
  • Core allocation
  • Economics
  • Leader position
  • Vertical integration

ASJC Scopus subject areas

  • Computer Science(all)
  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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