Substitution Effects in Supply Chains with Asymmetric Information Distribution and Upstream Competition

Schlapp, Jochen ; Fleischmann, Moritz

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URN: urn:nbn:de:bsz:180-madoc-342641
Document Type: Working paper
Year of publication: 2013
Place of publication: Mannheim
Publication language: English
Institution: Business School > ABWL u. Logistik (Fleischmann 2009-)
Subject: 330 Economics
Abstract: Inventory management in markets with substituting customers is extremely challenging, not only for a downstream wholesaler, but also for upstream manufacturers. Motivated by the structures in the agrochemical market, we analyze the optimal production and stocking quantities of a manufacturer and a wholesaler, respectively, in a two-stage supply chain with upstream competition and vertical information asymmetries. We characterize a monopolistic wholesaler's optimal stocking quantities and show that these quantities are not necessarily monotonic, neither in the available production quantities nor in the customers' substitution rates. We further derive the optimal production quantities of a monopolistic and a competitive manufacturer when they are incompletely informed about the wholesaler's stocking quantities. We find that the introduction of competition may lead to decreasing production quantities for some products. Furthermore, a product's end-of-season inventories at the manufacturer which arise due to information asymmetries may decrease even when initial production levels increase. Key words: customer substitution; supply chain; asymmetric information; competition; inventory management

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