Technical Notes: Studies on the value of secondary market to the supply chain

Abstract

This paper investigates the impact of a secondary market, where retailers can buy and sell excess inventories, on the supply chain. We develop a two-period model with a single manufacturer and two retailers. At the beginning of the first period the retailers order and receive products from the manufacturer, but at the beginning of the second period, they can trade surplus products between themselves in the secondary market. We investigate the impact of the correlated dependence of retailers’ demand on both the quantity effect and the allocation effect under the secondary market. Lastly, we study potential strategies for the manufacturer to increase sales with the existence of the secondary market.

Keywords

Supply chain / secondary market / exchanges / market equilibrium

References

[1] Austin, T.A., Lee, H., Kopczak, L.R., “Unlocking hidden value in the personal computer supply chain”, Anderson Consulting, 1997.

[2] Cachon, G.P., “Supply chain coordination with contracts”, in S. Graves, Ton de Kok eds., Handbooks in Operation and Managements Science: Supply Chain Management, North-Holland, 2003.

[3] Corbet C.J., deGroote X.. A supplier’s optimal quantity discount policy under asymmetric information. Management Science, 2000, 46(3): 444-450.

[4] eHITEX, “High-tech industry leaders announce open internet exchange for computer and electronics marketplace”, Press Release (May 1), New York, 2000.

[5] Lee H., Rosenblatt. A generalized quantity discount pricing model to increase supplier’s profit. Management Science, 1986, 32(9): 1177-1185.

[6] Lee H., Whang S.. The impact of the secondary market on the supply chain. Management Science, 2002, 48(6): 719-731.

[7] Pasternack B.A.. Optimal pricing and return policies for perishable commodities. Marketing Science, 1985, 4(2): 166-176.