Coordinating a Supply Chain when an Upstream Firm Holds Equity in a Downstream Firm

Abstract

Abstract:

A two-stage supply chain model with a single upstream firm and a single downstream firm is established. In this model, the upstream firm holds equity in its downstream firm. First, this paper derives the optimal pricing and production decisions of each player under a pull contract, and shows that the optimal production quantity of the upstream firm is lower than that of the centralized supply chain. Then, a coordination mechanism is designed by introducing a price subsidy policy. The result indicates that supply chain's expected profit can be arbitrarily divided between the upstream firm and the downstream firm by the coordination mechanism, and thus the upstream and downstream firms can benefit from such a coordination mechanism.

Key words: supply chain, equity holding, price subsidy, coordination

Zhang Nan, Zhou Zongfang. Coordinating a Supply Chain when an Upstream Firm Holds Equity in a Downstream Firm[J]. , 2017, 29(8): 234-242.

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