Strategic Customer Behavior and the Benefit of Decentralization

Chapter
Part of the International Series in Operations Research & Management Science book series (ISOR, volume 131)

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.

Key words

strategic customer behavior supply chain decentralization durable goods newsvendor 

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Copyright information

© Springer-Verlag US 2009

Authors and Affiliations

  1. 1.The Haas School of BusinessUniversity of California, BerkeleyBerkeleyUSA
  2. 2.Olin Business SchoolWashington University in St. LouisSt. LouisUSA

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