Auctions in the post‐change‐order period

A change order is frequently initiated by either the supplier or the buyer, especially when the contract is long‐term or when the contractual design is complex. In response to a change order, the buyer can enter a bargaining process to negotiate a new price. If the bargaining fails, she pays a cancellation fee (or penalty) and opens an auction. We call this process the sequential bargaining‐auction (BA). At the time of bargaining, the buyer is uncertain as to whether the bargained price is set to her advantage; indeed, she might, or might not, obtain a better price in the new auction. To overcome these difficulties, we propose a new change‐order‐handling mechanism by which the buyer has an option to change the contractual supplier after bargaining ends with a bargained price. We call this the option mechanism. By this mechanism, the privilege of selling products or services is transferred to a new supplier if the buyer exercises the option. To exercise the option, the buyer pays a prespecified cash payment, which we call the switch price, to the original supplier. If the option is not exercised, the bargained price remains in effect. When a switch price is proposed by the buyer, the supplier decides whether or not to accept it. If the supplier accepts it, the buyer opens an auction. The option is exercised when there is a winner in the auction. This article shows how, under the option mechanism, the optimal switch price and the optimal reserve price are determined. Compared to the sequential BA, both the buyer and the supplier benefit. Additionally, the option mechanism coordinates the supply chain consisting of the two parties. © 2015 Wiley Periodicals, Inc. Naval Research Logistics 62: 248–265, 2015     

On efficiency of multistage channel with bargaining over wholesale prices

This article considers a multistage channel with deterministic price‐sensitive demand. Two systems for pricing decisions, that is, the bargaining system and the leader‐follower system, are compared. We characterize the necessary and sufficient conditions on the power structure, under which the solution of the bargaining system Pareto dominates that of the leader‐follower system. Also, under such conditions, we give a tight upper bound of channel efficiency of the bargaining system, which converges to 100% channel efficiency as the number of stages increases to infinity. © 2016 Wiley Periodicals, Inc. Naval Research Logistics 63: 449–459, 2016     

Let’s make a (nuclear) deal: Bargaining,credibility, and the third offset strategy

An institutional perspective on nuclear deterrence cooperation within alliances has the potential to fundamentally reorient how we think about analyzing nuclear and deterrence decision-making between nuclear patrons and non-nuclear clients. It comes at a time when the presidency of Donald Trump is sure to test many of the core claims and assumptions in security studies, especially relating to bargaining and credibility within alliances. This article surveys questions that will be core to the research agenda involving alliance institutions and nuclear weapons during the Trump presidency and beyond.     

SHOULD MILITARY UNIFORMS CARRY THE UNION LABEL?

It is widely believed that the unionization of military labor leads to reduced discipline and lower combat capability. Case studies of the performance of existing military unions, however, generally suggest that unionization has a benign impact on the performance of the armed forces. In this paper, we offer a theoretical economic analysis of the likely impact of military unionization on volunteer militaries. Our analysis suggests that military unionization will unambiguously lead to larger, but less disciplined, armed forces, leaving the overall impact of unionization on defense capability ambiguous. Military unionization, however, will clearly enhance social welfare.     

Inventory transshipment game with limited supply: Trap or treat

Inventory transshipment is generally shown to be beneficial to retailers by matching their excess demand with surplus inventory. We investigate an inventory transshipment game with two newsvendor-type retailers under limited total supply and check whether the retailers are better off than the case without transshipment. We derive the ordering strategies for the retailers and show that unlike the unlimited supply case, a pure Nash equilibrium only exists under certain conditions. Furthermore, contrary to the conventional wisdom, we show that inventory transshipment may not always benefit both retailers. Although one of the retailers is guaranteed to be better off, the other could be worse off. The decision criteria are then provided for the retailers to determine if they will benefit from the exercise of inventory transshipment. Numerical study indicates that the carefully chosen transshipment prices play an important role in keeping inventory transshipment beneficial to both retailers. Subsequently, a coordinating mechanism is designed for the retailers to negotiate transshipment prices that maximize the total profit of the two retailers while keeping each of them in a beneficial position.