Early Commitment Strategies under
Capacity Competition
Ismail Serdar Bakal and Joseph Geunes
Department of Industrial and Systems Engineering
We
consider the implications of early-commitment strategies when retailers compete
for supplier capacity under demand uncertainty. Specifically, we investigate a supply chain
with multiple retailers and a single supplier in a single period context where one
of the retailers is the primary customer of the supplier. In the base model, all retailers order after
observing demand and the supplier rations its capacity to the retailers
according to a uniform allocation rule.
In the early-commitment model, the primary retailer commits to an order
quantity prior to the selling season and receives the minimum between this
order quantity and the supplier's production.
We compare the expected supplier and retailer profits under each of
these strategies and specify conditions under which the early-commitment scheme
benefits the supplier and/or the primary retailer.