RFQ, Sequencing, and the Most Favorable Bargaining Outcome
Friday, August 25, 2017
10:00 am
Rawls 3058
--Inspired by prescription drug affordability practices, we study how a buyer may achieve cost reduction by combining a procurement process with quantity-dependent pricing- contracts and exclusion clauses, the latter of which has been commonly adopted in contracting but rarely executed. We analyze the equilibrium outcomes when the buyer simultaneously or sequentially negotiates with imperfectly substitutable suppliers under a- dual-sourcing setting. We show that quantity-dependent pricing contracts coordinate the supply chain, and introducing exclusion clauses leads to various equilibrium profit allocations. Surprisingly, the buyer can benefit from a request for quotation (RFQ)- stage that precedes the negotiation stage even under a full information setting. Specifically, by endogenizing the sequence of negotiations via the quotations submitted in the RFQ stage, the buyer's equilibrium profit with RFQ dominates the buyer's profit- without RFQ. The insights extend to an uncertain demand setting, in which the buyer first negotiates contracts with suppliers and then decides order quantities after demand realization.
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Leon Zhu is an associate professor of Data Sciences and Operations in the Marshall School of Business. He received his Ph.D. in Industrial- and Systems Engineering and M.A. in Economics from the University of Florida and a Bachelor degree from Shanghai Jiaotong University. Before joining Marshall, he was a Postdoc and lectured at the University of California, Berkeley.
-His- research interests include policy and mechanism design, game theory, and applied optimization. Professor Zhu's papers have appeared in the leading journals, including the-American Economic Review, Journal of Economic Theory, Management Science, Manufacturing and Service Operations Management, Production and Operations Management, Operations Research,-and Rand-Journal of Economics.
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