Bargaining for an Assortment
2013, forthcoming Management Science
G. Aydin, H. S. Heese
A retailer’s assortment decision results from a process of give-and-take, during which the retailer may bid manufacturers against one another, and the terms of trade oﬀer plenty of ﬂexibility for allocating the proﬁt among the retailer and manufacturers. We adopt a bargaining framework to capture such an assortment selection process. We investigate the properties of the proﬁt allocations that could emerge in a decentralized supply chain. In our model, the retailer engages in simultaneous, bilateral negotiations with all manufacturers. Our model and analysis produce managerial insights that could not be obtained in the absence of a bargaining perspective on assortment planning. For example, we ﬁnd that when a manufacturer improves its product, such improvements do not only beneﬁt the retailer, but they might even beneﬁt competing manufacturers. In fact, even improvements to out-of-assortment products can increase the proﬁts of the retailer and certain in-assortment manufacturers. Hence, our results suggest that a manufacturer can beneﬁt from collaborating with judiciously chosen competitors.
Aydin, G. and H. S. Heese (2013), “Bargaining for an Assortment,” Management Science, forthcoming.
assortment planning, bargaining, game theory