Demand information and spot price information : supply chains trading in spot markets

Xuan ZHAO, Wei XING, Liming LIU, Shouyang WANG

Research output: Journal PublicationsJournal Article (refereed)

10 Citations (Scopus)

Abstract

This paper investigates the effect of information updating on the members of a two-stage supply chain in the presence of spot market. The supplier decides the contract price. New information becomes available as time progresses. The manufacturer updates his belief on demand and/or spot price and subsequently decides the contract quantity. The demand and spot price are correlated. Thus, the new demand information also updates the belief on the spot price, and vice versa. We model the problem with an information updating Stackelberg game and derive unique equilibrium strategies. Previous studies have considered only the demand information and concluded that improved demand information always benefits the supplier. By contrast, we demonstrate that improved demand information benefits both the supplier and manufacturer if the correlation coefficient between the two uncertainties has a small positive value and benefits the manufacturer but hurts the supplier otherwise. Moreover, superior spot price information benefits only the manufacturer and always hurts the supplier. Surprisingly, superior information fails to improve the performance of the supply chain and only changes the allocation of the profits between the supplier and manufacturer. Our findings likewise provide insights into when the supplier intends to use the contract channel and which type of information updating facility or expertise to invest in if a choice must be made.
Original languageEnglish
Pages (from-to)837-849
Number of pages13
JournalEuropean Journal of Operational Research
Volume246
Issue number3
Early online date23 May 2015
DOIs
Publication statusPublished - 1 Nov 2015

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Keywords

  • Supply chain management
  • Information updating
  • Spot market
  • Forward contract
  • Dual sourcing

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