Groupe d’études et de recherche en analyse des décisions

The impact of valuation heterogeneity and network structure on supply chain prices

Alper Nakkas Université McGill, NOVA School of Business and Economics, Portugal

This paper studies bargaining in two-sided supply chain networks where manufacturers on the demand side purchase an input from suppliers on the supply side. A manufacturer and a supplier must have a business relationship or "link" to bargain and trade with each other. We show that valuation heterogeneity, supply-demand balance, and network structure are the main factors that influence the equilibrium prices, trading pattern, and surplus allocation. We demonstrate that bargaining effectively takes place in smaller sub-networks and develop a decomposition algorithm to identify into these sub-networks. We also study competitiveness and efficiency properties of general supply chain networks.

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