Dynamic Stable Supplier Coalitions and Invariance in Assembly Systems with Commodity Components

17 Pages Posted: 4 Apr 2011 Last revised: 27 Jun 2014

See all articles by Mahesh Nagarajan

Mahesh Nagarajan

University of British Columbia (UBC) - Sauder School of Business

Greys Sosic

University of Southern California - Marshall School of Business

Chunyang Tong

Shanghai University of Finance and Economics

Date Written: January 2014

Abstract

Stable alliance structures among monopoly component-suppliers in a decentralized assembly system are somewhat well understood. However, when there are competing suppliers for any particular component, less is known about such alliances. The intent of this paper is to address some of the theoretical issues that pose challenges in analyzing stable supplier coalitions in such assembly systems. We examine a simple assembly system in which n suppliers sell complementary components to a downstream assembler, who faces a price-sensitive deterministic demand. We assume that k of these suppliers sell commodity components and the remaining n-k suppliers are monopolists. We analyze alliance/coalition formation between suppliers, using a two stage approach that is common in the literature. When not all suppliers are monopolists, predictions on stable supplier alliances is fraught with technical difficulties. We resolve these by showing an asymptotic invariance result. We use this in Stage 1 of the game, to predict the structure of the stable supplier coalitions using a dynamic version of stability that accounts for players' farsightedness.

Suggested Citation

Nagarajan, Mahesh and Sosic, Greys and Tong, Chunyang, Dynamic Stable Supplier Coalitions and Invariance in Assembly Systems with Commodity Components (January 2014). Available at SSRN: https://ssrn.com/abstract=1801582 or http://dx.doi.org/10.2139/ssrn.1801582

Mahesh Nagarajan

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Greys Sosic (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

Chunyang Tong

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

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