Selling to a Competing Buyer with Limited Supplier Capacity

53 Pages Posted: 26 Sep 2014 Last revised: 24 Feb 2020

See all articles by Zhibin (Ben) Yang

Zhibin (Ben) Yang

University of Oregon - Lundquist College of Business

Xinxin Hu

Independent

Haresh Gurnani

Wake Forest University School of Business

Huiqi Guan

University of Miami

Date Written: September 27, 2014

Abstract

We study the optimal distribution strategy of a supplier with limited capacity. The supplier may adopt the supplier only role, be the solo seller in the market, or use the dual channel strategy and compete with its downstream buyer. In comparison to the case of unlimited capacity, we show that the supplier and the buyer, and consumers may all benefit from the supplier’s limited capacity at the same time, leading to a “win-win-win” outcome. We also find that, under limited capacity, the downstream buyer may strategically withhold some supply from being sold to the market even if there is no underlying supply-side or demand-side uncertainty. Our result points to a new form of strategic purchasing behavior by the buyer in the face of upstream and downstream competition. Interestingly, we show that while buyer withholding is always beneficial for the supplier, it may even reduce the buyer’s profit under certain cases. Further, when buyer withholding occurs, it eliminates the double marginalization effect and total supply chain profit is the first-best outcome. Finally, in contrast to intuition, we find that the supplier’s benefit from investing in direct selling capability is higher when its capacity size is moderate and not large.

Keywords: supply chain structure, distribution strategy, competition, limited capacity

Suggested Citation

Yang, Zhibin and Hu, Xinxin and Gurnani, Haresh and Guan, Huiqi, Selling to a Competing Buyer with Limited Supplier Capacity (September 27, 2014). Available at SSRN: https://ssrn.com/abstract=2501159 or http://dx.doi.org/10.2139/ssrn.2501159

Zhibin Yang (Contact Author)

University of Oregon - Lundquist College of Business ( email )

1208 University of Oregon
Eugene, OR 97403-1208
United States

Xinxin Hu

Independent ( email )

Haresh Gurnani

Wake Forest University School of Business ( email )

2601 Wake Forest Road
Winston-Salem, NC 27109
United States

HOME PAGE: http://business.wfu.edu/directory/haresh-gurnani/ Haresh Gurnani

Huiqi Guan

University of Miami ( email )

Coral Gables, FL 33124
United States

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