ZLC Seminar Series:Gerardo Pelayo, PhD Candidate

Presented by: Gerardo Pelayo(under the supervision of Dr. M. C. Gürbüz)

Abstract
The paper analyzes a supply chain composed by a manufacturer, a buyer, and (up to) two observable types of consumers in a a two-period game with a newsvendor-type demand process and a FCFS policy. Consumer heterogeneity exists in the form of different willingness to pay for the product manufactured by each type, either due to the product’s different applications for each consumer type, or due to the consumers’ different resource constraints. In the first period, the manufacturer’s product is positively valued by a single type of consumers, and the manufacturer is allowed to exert innovation effort aimed at providing consumers of a second type with a positive valuation of the product. In the second period, the outcome of the effort decision is observed and demand realizes. We assume that the buyer, who is in charge of deciding the inventory stock of the good, either is able to perform first-degree price discrimination or sells at a unique price to all types of consumers but observes and internalizes their surplus. Under the described setting we analyze the implications of supply chain structure, defined as having a single (pooled) inventory stock versus having dedicated inventory stocks for each type of consumer with no possibility of transhipments. Specifically, we observe how the structural design affects inventory and effort decisions, and the resulting profits in the supply chain. The latter analysis is first performed under vertical integration (as a benchmark), and then considering exogenous price-only contracts and two-part tariffs between the manufacturer and the buyer.