Strategic Benefit of Request for Proposal/Quotation

Forthcoming, Operations Research

55 Pages Posted: 2 Jul 2018 Last revised: 24 Oct 2019

See all articles by Leon Yang Chu

Leon Yang Chu

University of Southern California - Data Sciences and Operations; Cheung Kong Graduate School of Business

Ying Rong

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Huan Zheng

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Date Written: Oct 10, 2019

Abstract

We study how the procurement process may help a buyer reduce purchasing costs under a dual-sourcing setting. First, we analyze the equilibrium outcomes when the buyer simultaneously or sequentially bilaterally negotiates with the suppliers. We establish coordination results and characterize the buyer's maximum equilibrium profit under such bilateral bargaining settings. Moreover, we show that the buyer can benefit from a request for proposal/quotation (RFx) stage that precedes the negotiation stage when the suppliers are imperfect substitutes. Specifically, by endogenizing the sequence of negotiations via the offers tendered in the RFx stage, the buyer's equilibrium profit with an RFx is (weakly) higher than her maximum equilibrium profit without an RFx. Furthermore, under a complete information setting, the buyer accepts both offers generated in the RFx stage and additional negotiation needs not to be carried out in equilibrium. Our insights extend to a random demand setting, in which the buyer first negotiates contracts with the suppliers and then decides order quantities after demand realization.

Keywords: Bilateral Bargaining, Request for Proposal, Request for Quotation, Sourcing Strategy

JEL Classification: C71, C72, C78

Suggested Citation

Chu, Leon Yang and Rong, Ying and Zheng, Huan, Strategic Benefit of Request for Proposal/Quotation (Oct 10, 2019). Forthcoming, Operations Research. Available at SSRN: https://ssrn.com/abstract=3200030 or http://dx.doi.org/10.2139/ssrn.3200030

Leon Yang Chu (Contact Author)

University of Southern California - Data Sciences and Operations ( email )

701 Exposition Blvd
Los Angeles, CA
United States

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

Ying Rong

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

Huan Zheng

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

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