The Implications of Strategic Inventory for Short-Term vs. Long-Term Supply Contracts in Non-Exclusive Reselling Environments

86 Pages Posted: 11 Jan 2021

See all articles by Abhishek Roy

Abhishek Roy

Temple University, Fox School of Business, Department of Marketing and Supply Chain Management

Stephen Gilbert

University of Texas at Austin - McCombs School of Business

Guoming Lai

University of Texas at Austin - Red McCombs School of Business

Date Written: December 19, 2020

Abstract

Although it is well known that a reseller’s ability to hold strategic inventory under a short- term supply contract can potentially benefit both the reseller and a supplier, existing research on strategic inventory focuses predominantly on exclusive reselling environments. However, in non- exclusive reselling environments, where more than one supplier sells its product through the same reseller, the use of strategic inventory under short-term contracts intensifies the price competition between suppliers. We show how this effect can be mitigated when one or both suppliers offers a long-term contract. Moreover, we show that long-term contracts can arise as an equilibrium outcome, particularly when products are more substitutable or holding costs are large.

Keywords: Inventory-production : Marketing-pricing, Marketing : Channels of distribution, Marketing : Retailing and wholesaling, Economics: Game Theory and Bargaining Theory

Suggested Citation

Roy, Abhishek and Gilbert, Stephen and Lai, Guoming, The Implications of Strategic Inventory for Short-Term vs. Long-Term Supply Contracts in Non-Exclusive Reselling Environments (December 19, 2020). Available at SSRN: https://ssrn.com/abstract=3752131 or http://dx.doi.org/10.2139/ssrn.3752131

Abhishek Roy (Contact Author)

Temple University, Fox School of Business, Department of Marketing and Supply Chain Management ( email )

Philadelphia, PA 19122
United States

HOME PAGE: http://https://www.fox.temple.edu/mcm_people/roy-abhishek/

Stephen Gilbert

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

Guoming Lai

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States

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