Abstract
In the operations management literature, decentralization is often associated with the double marginalization problem. However, in this chapter, we review several existing papers that demonstrate how decentralization can be beneficial to supply chain performance. A key premise in this literature is that consumers are strategic: They rationally anticipate and respond to future market conditions. We consider two broad classes of products, durable goods and perishable goods. In both cases, when facing strategic consumers, firms are typically better off if they can commit to future actions. When operating in a decentralized supply chain, contractual mechanisms can help firms achieve commitment power and increase profits. In this way, decentralized systems can outperform a centralized organization.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Arya A, Mittendorf B (2006) Benefits of channel discord in the sale of durable goods. Marketing Science 25(1):91–96
Bulow JI (1982) Durable-goods monopolists. Journal of Political Economy 90(2):314–332
Byrnes N, Zellner W (2004) Playing the discount game. Business Week. Dec 13
Cachon G (2003) Supply Chain Coordination with Contracts. Handbooks in OR&MS. Graves, de Kok, eds
Cachon G, Harker P (2002) Competition and outsourcing with scale economies. Management Science 48(10):1314–1333
Coase RH (1972) Durability and monopoly. Journal of Law and Economics 15(1):143–149
Desai P, Koenigsberg O, Purohit D (2004) Strategic decentralization and channel coordination. Quantitative Marketing and Economics 2:5–22
Ferdows K, Lewis MA, Machuca JAD (2004) Rapid-fire fulfillment. Harvard Business Review 82(11): 104–110
Liu Y, Tyagi RK (2007) The benefits of upward channel decentralization. Working paper
McGuire TW, Staelin R (1983) An industry equilibrium analysis of downstream vertical integration. Marketing Science 2(2):161–191
Merrick A (2001) Retailers attempt to get a leg up on markdowns with new software. Wall Street Journal, August 7
Netessine S, Zhang F (2005) Positive vs. negative externalities in inventory management: Implications for supply chain design. M&SOM 7(1):58–73
Petruzzi N, Dada M (1999) Pricing and the newsvendor problem: A review extensions. Operations Research 47:183–194
Shen ZJ, Su X (2007) Customer behavior modeling in revenue management and auctions: a review and new research opportunities. Production & Operations Management 16(6):713–728
Su X, Zhang F (2008) Strategic customer behavior, commitment, and supply chain performance. Management Science. 54(10): 1759–1773.
Trachtenberg JA (2005) Shelf life: Quest for best seller creates a pileup of returned books. WSJ. Jun 3
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2009 Springer-Verlag US
About this chapter
Cite this chapter
Su, X., Zhang, F. (2009). Strategic Customer Behavior and the Benefit of Decentralization. In: Tang, C., Netessine, S. (eds) Consumer-Driven Demand and Operations Management Models. International Series in Operations Research & Management Science, vol 131. Springer, Boston, MA. https://doi.org/10.1007/978-0-387-98026-3_7
Download citation
DOI: https://doi.org/10.1007/978-0-387-98026-3_7
Published:
Publisher Name: Springer, Boston, MA
Print ISBN: 978-0-387-98018-8
Online ISBN: 978-0-387-98026-3
eBook Packages: Business and EconomicsBusiness and Management (R0)