Negotiations in Competitive Supply Chains: The Kalai-Smorodinsky Bargaining Solution

35 Pages Posted: 4 Sep 2019 Last revised: 5 Feb 2021

See all articles by Qi Feng

Qi Feng

Purdue University - Krannert School of Management

Yuanchen Li

Purdue University - Krannert School of Management

J. George Shanthikumar

Purdue University - Krannert School of Management

Date Written: September 3, 2019

Abstract

Supply chain contract negotiation has gain increasing attentions in recent years, and the studies involving negotiations in the operations literature almost exclusively apply the concept of the Nash bargaining (NB) solution. The NB solution, however, is derived based on the axiom of independence of irrelevant alternatives (IIA), an unrealistic assumption widely criticized in economics. Indeed, our analysis suggests that the NB solution can lead to unreasonable negotiation outcomes in competing supply chains. As an alternative, the Kalai-Smorodinsky (KS) solution has been applied in many fields, but has not been introduced to the supply chain contexts. We apply the KS solution to study contract negotiations in competing supply chains, and analyze its connection to and difference from the NB solution. In particular, we show that, compared with the NB solution, the KS solution appropriately captures the negotiation power shift induced by the decision ownership, the negotiation sequence, the vertical relationship, the competition intensity, the contract contingency, and the contract type.

Keywords: Kalai-Smorodinsky Bargaining Solution, Nash Bargaining Solution, Competing Supply Chain

Suggested Citation

Feng, Qi and Li, Yuanchen and Shanthikumar, J. George, Negotiations in Competitive Supply Chains: The Kalai-Smorodinsky Bargaining Solution (September 3, 2019). Available at SSRN: https://ssrn.com/abstract=3447674 or http://dx.doi.org/10.2139/ssrn.3447674

Qi Feng

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Yuanchen Li (Contact Author)

Purdue University - Krannert School of Management ( email )

610 Purdue Mall
West Lafayette, IN 47907
United States

J. George Shanthikumar

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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