Fall 2011 Seminar Series

DATE: September 8th
LOCATION: E62-550
TIME: 4:15pm
Reception immediately following

SPEAKER:
Izak Duenyas

TITLE
Price Quoting Strategies of a Tier-Two Supplier

ABSTRACT
This paper studies the price-quoting strategies used by a tier-two supplier, whose tier-one customers compete for an end buyer's indivisible contract. At most one of the tier-two supplier¹s quotes may result in downstream contracting and hence produce revenue for her. We characterize the tier-two supplier¹s optimal price-quoting strategies and show that she will use one of two possible types of strategies, with her choice depending on the tier-one suppliers¹ profit potentials: secure, whereby she will always have business; or risky, whereby she may not have business. Addressing potential fairness concerns, we also study price-quoting strategies in which all tier-one suppliers receive equal quotes. Finally, we show that a tier-two supplier¹s optimal mechanism resembles auctioning a single quote among the tier-one suppliers. This paper can assist tier-two suppliers in their pricing decisions, and provides general insights into multi-tier supply chains¹ pricing dynamics.