Skip to main content
SpringerLink
Log in

Game Theory in Supply Chain Analysis

  • Chapter
Handbook of Quantitative Supply Chain Analysis

Part of the book series: International Series in Operations Research & Management Science ((ISOR,volume 74))

Abstract

Game theory (hereafter GT) is a powerful tool for analyzing situations in which the decisions of multiple agents affect each agent’s payoff. As such, GT deals with interactive optimization problems. While many economists in the past few centuries have worked on what can be considered game-theoretic models, John von Neumann and Oskar Morgenstern are formally credited as the fathers of modern game theory. Their classic book “Theory of Games and Economic Behavior”, von Neumann and Morgenstern (1944), summarizes the basic concepts existing at that time. GT has since enjoyed an explosion of developments, including the concept of equilibrium by Nash (1950), games with imperfect information by Kuhn (1953), cooperative games by Aumann (1959) and Shubik (1962) and auctions by Vickrey (1961), to name just a few. Citing Shubik (2002), “In the 50s ... game theory was looked upon as a curiosum not to be taken seriously by any behavioral scientist. By the late 1980s, game theory in the new industrial organization has taken over ... game theory has proved its success in many disciplines.”

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 169.00
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 219.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 219.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • Anand, K., R. Anupindi and Y. Bassok. 2002. Strategic inventories in procurement contracts. Working Paper, University of Pennsylvania.

    Google Scholar 

  • Anupindi, R., Y. Bassok and E. Zemel. 2001. A general framework for the study of decentralized distribution systems. Manufacturing and Service Operations Management, Vol. 3, 349–368.

    Article  Google Scholar 

  • Aumann, R. J. 1959. Acceptable Points in General Cooperative N-Person Games, pp. 287–324 in “Contributions to the Theory of Games”, Volume I V, A. W. Tucker and R. D. Luce, editors. Princeton University Press.

    Google Scholar 

  • Baiman, S., S. Netessine and H. Kunreuther. 2003. Procurement in supply chains when the end-product exhibits the weakest link property. Working Paper, University of Pennsylvania.

    Google Scholar 

  • Basar, T. and G.J. Olsder. 1995. Dynamic noncooperative game theory. SIAM, Philadelphia.

    Google Scholar 

  • Bernstein, F. and A. Federgruen. 2000. Comparative statics, strategic complements and substitute in oligopolies. Forthcoming in Journal of Mathematical Economics.

    Google Scholar 

  • Bernstein, F. and A. Federgruen. 2001 a. Decentralized supply chains with competing retailers under Demand Uncertainty. Forthcoming in Management Science.

    Google Scholar 

  • Bernstein, F. and A. Federgruen. 2003. Pricing and Replenishment Strategies in a Distribution System with Competing Retailers. Operations Research, Vol. 51, No. 3, 409–426.

    Article  Google Scholar 

  • Bernstein, F. and A. Federgruen. 2001c. A General Equilibrium Model for Decentralized Supply Chains with Price-and Service-Competition. Working Paper, Duke University.

    Google Scholar 

  • Bernstein, F. and A. Federgruen. 2002. Dynamic inventory and pricing models for competing retailers. Forthcoming in Naval Research Logistics.

    Google Scholar 

  • Bertsekas, D. P. 1999. Nonlinear Programming. Athena Scientific.

    Google Scholar 

  • Border, K.C. 1999. Fixed point theorems with applications to economics and game theory. Cambridge University Press.

    Google Scholar 

  • Brandenburger, A. and H.W. Stuart, Jr. 1996. Value-based business strategy. Journal of Economics and Management Strategy, Vol. 5, No. 1, 5–24.

    Article  Google Scholar 

  • Brandenburger, A. and H.W. Stuart, Jr. 2003. Biform games. Working Paper, Columbia University.

    Google Scholar 

  • Cachon, G. 2001. Stock wars: inventory competition in a two-echelon supply chain. Operations Research, Vol. 49, 658–674.

    Article  Google Scholar 

  • Cachon, G. 2002. Supply chain coordination with contracts. Forthcoming in “Handbooks in Operations Research and Management Science: Supply Chain management”, S. Graves and T. de Kok, editors.

    Google Scholar 

  • Cachon, G. 2003. The allocation of inventory risk in a supply chain: push, pull and advanced purchase discount contracts. University of Pennsylvania working paper. Conditionally accepted, Management Science.

    Google Scholar 

  • Cachon, G. and C. Camerer. 1996. Loss avoidance and forward induction in coordination games. Quarterly Journal of Economics. Vol. 112, 165–194.

    Article  Google Scholar 

  • Cachon, G. and P. T. Harker. 2002. Competition and outsourcing with scale economies. Management Science, Vol. 48, 1314–1333.

    Article  Google Scholar 

  • Cachon, G. and M. Lariviere. 1999. Capacity choice and allocation: strategic behavior and supply chain performance. Management Science. Vol. 45, 1091–1108.

    Article  Google Scholar 

  • Cachon, G. and M. Lariviere. 2001. Contracting to assure supply: how to share demand forecasts in a supply chain. Management Science. Vol. 47, 629–646.

    Article  Google Scholar 

  • Cachon, G.P. and P.H. Zipkin. 1999. Competitive and cooperative inventory policies in a two-stage supply chain. Management Science, Vol. 45, 936–953.

    Article  Google Scholar 

  • Cachon, G. and G. Kok. 2002. Heuristic equilibrium in the newsvendor model with clearance pricing. Working Paper, University of Pennsylvania.

    Google Scholar 

  • Chen, F. 2001. Auctioning supply contracts. Working paper, Columbia University.

    Google Scholar 

  • Ren, J., Cohen, M., T. Ho., and C. Terwiesch. 2003. Sharing forecast information in a long-term supply chain relationship. Working Paper, University of Pennsylvania.

    Google Scholar 

  • Corbett, C. 2001. Stochastic inventory systems in a supply chain with asymmetric information: cycle stocks, safety stocks, and consignment stock. Operations Research. Vol. 49, 487–500.

    Article  Google Scholar 

  • Corbett C. J. and G. A. DeCroix. 2001. Shared-Savings Contracts for Indirect Materials in Supply Chains: Channel Profits and Environmental Impacts. Management Science, Vol. 47, 881–893.

    Article  Google Scholar 

  • Debo, L. 1999. Repeatedly selling to an impatient newsvendor when demand fluctuates: a supergame framework for co-operation in a supply chain. Working Paper, Carnegie Mellon University.

    Google Scholar 

  • Debreu, D. 1952. A social equilibrium existence theorem. Proceedings of the National Academy of Sciences, Vol. 38, 886–893.

    Article  Google Scholar 

  • Desai, V.S. 1992. Marketing-production decisions under independent and integrated channel structures. Annals of Operations Research, Vol. 34, 275–306.

    Article  Google Scholar 

  • Desai, V.S. 1996. Interactions between members of a marketing-production channel under seasonal demand. European Journal of Operational Research, Vol. 90, 115–141.

    Article  Google Scholar 

  • Eliashberg, J. and A.P. Jeuland. 1986. The impact of competitive entry in a developing market upon dynamic pricing strategies. Marketing Science, Vol. 5, 20–36.

    Article  Google Scholar 

  • Eliashberg, J. and R. Steinberg. 1987. Marketing-production decisions in an industrial channel of distribution. Management Science, Vol. 33, 981–1000.

    Article  Google Scholar 

  • Erhun F., P. Keskinocak and S. Tayur. 2000. Analysis of capacity reservation and spot purchase under horizontal competition. Working Paper, Georgia Institute of Technology.

    Google Scholar 

  • Feichtinger, G. and S. Jorgensen. 1983. Differential game models in management science. European Journal of Operational Research, Vol. 14, 137–155.

    Article  Google Scholar 

  • Filar, J. and K. Vrieze. 1996. Competitive Markov decision processes. Springer-Verlag.

    Google Scholar 

  • Friedman, J.W. 1986. Game theory with applications to economics. Oxford University Press.

    Google Scholar 

  • Fudenberg, D. and J. Tirole. 1991. Game theory. MIT Press.

    Google Scholar 

  • Gaimon, C. 1989. Dynamic game results of the acquisition of new technology. Operations Research, Vol. 3, 410–425.

    Article  Google Scholar 

  • Gale, D. and H. Nikaido. 1965. The Jacobian matrix and global univalence of mappings. Mathematische Annalen, Vol. 159, 81–93.

    Article  Google Scholar 

  • Gillemin V. and A. Pollak. 1974. Differential Topology. Prentice Hall, NJ.

    Google Scholar 

  • Granot, D. and G. Sosic. 2001. A three-stage model for a decentralized distribution system of retailers. Forthcoming, Operations Research.

    Google Scholar 

  • Hall, J. and E. Porteus. 2000. Customer service competition in capacitated systems. Manufacturing & Service Operations Management, Vol. 2, 144–165.

    Article  Google Scholar 

  • Hartman, B. C., M. Dror and M. Shaked. 2000. Cores of inventory centralization games. Games and Economic Behavior, Vol. 31, 26–49.

    Article  Google Scholar 

  • Heyman, D. P. and M. J. Sobel. 1984. Stochastic models in Operations Research, Vol. II: Stochastic Optimization. McGraw-Hill.

    Google Scholar 

  • Horn, R.A. and C.R. Johnson. 1996. Matrix analysis. Cambridge University Press.

    Google Scholar 

  • Kamien, M.I. and N.L. Schwartz. 2000. Dynamic optimization: the calculus of variations and optimal control in economics and management. North-Holland.

    Google Scholar 

  • Kirman, A.P. and M.J. Sobel. 1974. Dynamic oligopoly with inventories. Econometrica, Vol. 42, 279–287.

    Article  Google Scholar 

  • Kreps, D. M. 1990. A Course in Microeconomic Theory. Princeton University Press.

    Google Scholar 

  • Kreps, D. and R. Wilson. 1982. Sequential equilibria. Econometrica, Vol. 50, 863–894.

    Article  Google Scholar 

  • Kuhn, H. W. 1953. Extensive Games and the Problem of Information. pp. 193216 in “Contributions to the Theory of Games”, Volume I I, H. W. Kuhn and A. W. Tucker, editors. Princeton University Press.

    Google Scholar 

  • Lal, R. 1990. Price promotions: limiting competitive encroachment. Marketing Science, Vol. 9, 247–262.

    Article  Google Scholar 

  • Lariviere, M.A. and E.L. Porteus. 2001. Selling to the newsvendor: an analysis of price-only contracts. Manufacturing and Service Operations Management, Vol. 3, 293–305.

    Article  Google Scholar 

  • Lederer, P. and L. Li. 1997. Pricing, production, scheduling, and delivery-time competition. Operations Research, Vol. 45, 407–420.

    Article  Google Scholar 

  • Li, L. and S. Whang. 2001. Game theory models in operations management and information systems. In “Game theory and business applications”,K. Chatterjee and W.F. Samuelson, editors. Kluwer Academic Publishers.

    Google Scholar 

  • Lippman, S.A. and K.F. McCardle. 1997. The competitive newsboy. Operations Research, Vol. 45, 54–65.

    Article  Google Scholar 

  • Lucas, W.F. 1971. An overview of the mathematical theory of games. Management Science, Vol. 18, 3–19.

    Article  Google Scholar 

  • Mahajan, S and G. van Ryzin. 1999a. Inventory competition under dynamic consumer choice. Operations Research, Vol. 49, 646–657.

    Article  Google Scholar 

  • Mahajan, S and G. van Ryzin. 1999b. Supply chain coordination under horizontal competition. Working Paper, Columbia University.

    Google Scholar 

  • Majumder, P. and H. Groenevelt. 2001a. Competition in remanufacturing. Production and Operations Management, Vol. 10, 125–141.

    Article  Google Scholar 

  • Majumder, P. and H. Groenevelt. 2001 b. Procurement competition in remanufacturing. Working Paper, Duke University.

    Google Scholar 

  • Moulin, H. 1986. Game theory for the social sciences. New York University Press.

    Google Scholar 

  • Moulin, H. 1995. Cooperative microeconomics: a game-theoretic introduction. Princeton University Press.

    Google Scholar 

  • Muller, A., M. Scarsini and M. Shaked. 2002. The newsvendor game has a nonempty core. Games and Economic Behavior, Vol. 38, 118–126.

    Article  Google Scholar 

  • Mukhopadhyay, S.K. and P. Kouvelis. 1997. A differential game theoretic model for duopolistic competition on design quality. Operations Research, Vol. 45, 886–893.

    Article  Google Scholar 

  • Myerson, R.B. 1997. Game theory. Harvard University Press.

    Google Scholar 

  • Nash, J. F. 1950. Equilibrium Points in N-Person Games. Proceedings of the National Academy of Sciences of the United States of America, Vol. 36, 4849.

    Article  Google Scholar 

  • Netessine, S. and N. Rudi. 2001 a. Supply chain structures on the Internet and the role of marketing-operations interaction. Forthcoming in “Supply chain analysis in e-business era”, D. Simchi-Levi, S.D. Wu and M. Shen, Edts., Kluwer.

    Google Scholar 

  • Netessine, S. and N. Rudi. 2001 b. Supply Chain choice on the Internet. Working Paper, University of Pennsylvania. Available at http://www.netessine.com.

    Google Scholar 

  • Netessine, S. and N. Rudi. 2003. Centralized and competitive inventory models with demand substitution. Operations Research, Vol. 53, 329–335.

    Article  Google Scholar 

  • Netessine, S. and R. Shumsky. 2001. Revenue management games: horizontal and vertical competition. Working Paper, University of Pennsylvania. Available at http://www.netessine.com.

  • Netessine, S., N. Rudi and Y. Wang. 2002. Dynamic inventory competition and customer retention. Working Paper, University of Pennsylvania, available at http://www.netessine.com.

  • Netessine, S. and F. Zhang. 2003. The impact of supply-side externalities among downstream firms on supply chain efficiency. Working Paper, University of Pennsylvania, available at http://www.netessine.com.

  • Parlar, M. 1988. Game theoretic analysis of the substitutable product inventory problem with random demands. Naval Research Logistics, Vol. 35, 397–409.

    Article  Google Scholar 

  • Plambeck, E. and T. Taylor. 2001 a. Sell the plant? The impact of contract manufacturing on innovation, capacity and profitability. Working Paper, Stanford University.

    Google Scholar 

  • Plambeck, E. and T. Taylor. 2001b. Renegotiation of supply contracts. Working Paper, Stanford University.

    Google Scholar 

  • Porteus, E. and S. Whang. 1999. Supply chain contracting: non-recurring engineering charge, minimum order quantity, and boilerplate contracts. Working paper, Stanford University.

    Google Scholar 

  • Rosen, J.B. 1965. Existence and uniqueness of equilibrium points for concave N-person games. Econometrica, Vol. 33, 520–533.

    Article  Google Scholar 

  • Rudi, N., S. Kapur and D. Pyke. 2001. A two-location inventory model with transshipment and local decision making. Management Science, Vol. 47, 1668–1680.

    Article  Google Scholar 

  • Selten, R. 1965. Spieltheoretische behaundlung eine oligopolmodells mit nachfragetragheit. Zeitschrift fur die gesamte staatswissenschaft. Vol. 12, 301–324.

    Google Scholar 

  • Selten, R. 1975. Reexamination of the perfectness concept for equilibrium points in extensive games. International Journal of Game Theory, Vol. 4, 25–55.

    Article  Google Scholar 

  • Shapley, L. 1953a. Stochastic games. Proceedings of the National Academy of Sciences, Vol. 39, 1095–1100.

    Article  Google Scholar 

  • Shapley, L. 1953b. A value for nperson game. pp. 307–317 in “Contributions to the Theory of Games”, Volume I I, H. W. Kuhn and A. W. Tucker, editors. Princeton University Press.

    Google Scholar 

  • Shubik, M. 1962. Incentives, decentralized control, the assignment of joint costs and internal pricing. Management Science, Vol. 8, 325–343.

    Article  Google Scholar 

  • Shubik, M. 2002. Game theory and operations research: some musings 50 years later. Operations Research, Vol. 50, 192–196.

    Article  Google Scholar 

  • Sobel, M.J. 1971. Noncooperative stochastic games. Annals of Mathematical Statistics, Vol. 42, 1930–1935.

    Article  Google Scholar 

  • Stackelberg, H. von. 1934. Markform and Gleichgewicht. Vienna: Julius Springer.

    Google Scholar 

  • Stidham, S. 1992. Pricing and capacity decisions for a service facility: stability and multiple local optima. Management Science. Vol. 38, 1121–1139.

    Article  Google Scholar 

  • Stuart, H. W., Jr. 2001. Cooperative games and business strategy. In “Game theory and business applications”,K. Chatterjee and W.F. Samuelson, editors. Kluwer Academic Publishers.

    Google Scholar 

  • Tarski, A. 1955. A lattice-theoretical fixpoint theorem and its applications. Pacific Journal of Mathematics, Vol. 5, 285–308.

    Article  Google Scholar 

  • Taylor, T. A. and E. L. Plambeck. 2003. Supply chain relationships and contracts: the impact of repeated interaction on capacity investment and procurement. Working paper, Columbia University.

    Google Scholar 

  • Tayur, S. and W Yang. 2002. Equilibrium analysis of a natural gas supply chain. Working Paper, Carnegie Mellon University.

    Google Scholar 

  • Topkis, D. M. 1998. Supermodularity and complementarity. Princeton University Press.

    Google Scholar 

  • van Mieghem, J. 1999. Coordinating investment, production and subcontracting. Management Science, Vol. 45, 954–971.

    Article  Google Scholar 

  • van Mieghem, J. and M. Dada. 1999. Price versus production postponement: capacity and competition. Management Science, Vol. 45, 1631–1649.

    Google Scholar 

  • Varian, H. 1980. A model of sales. American Economic Review, Vol. 70, 651–659.

    Google Scholar 

  • Vickrey W. 1961. Counterspeculation, auctions, and competitive sealed tenders. Journal of Finance, Vol. 16, 8–37.

    Article  Google Scholar 

  • Vives, X. 1999. Oligopoly pricing: old ideas and new tools. MIT Press.

    Google Scholar 

  • von Neumann, J. and O. Morgenstern. 1944. Theory of games and economic behavior. Princeton University Press.

    Google Scholar 

  • Wang, Y. and Y. Gerchak. 2003. Capacity games in assembly systems with uncertain demand. Manufacturing and Service Operations Management, Vol. 5, No. 3, 252–267.

    Article  Google Scholar 

  • Wang, Q. and M. Parlar. 1989. Static game theory models and their applications in management science. European Journal of Operational Research, Vol. 42, 1–21.

    Article  Google Scholar 

  • Wang, Q. and M. Parlar. 1994. A three-person game theory model arising in stochastic inventory control theory. European Journal of Operational Research, Vol. 76, 83–97.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. The Wharton School, University of Pennsylvania, Philadelphia, PA, 19104, USA

    Gérard P. Cachon & Serguei Netessine

Authors
  1. Gérard P. Cachon
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Serguei Netessine
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. Massachusetts Institute of Technology, USA

    David Simchi-Levi

  2. Lehigh University, USA

    S. David Wu

  3. University of Florida, USA

    Zuo-Jun Shen

Rights and permissions

Reprints and permissions

Copyright information

© 2004 Springer Science+Business Media New York

About this chapter

Cite this chapter

Cachon, G.P., Netessine, S. (2004). Game Theory in Supply Chain Analysis. In: Simchi-Levi, D., Wu, S.D., Shen, ZJ. (eds) Handbook of Quantitative Supply Chain Analysis. International Series in Operations Research & Management Science, vol 74. Springer, Boston, MA. https://doi.org/10.1007/978-1-4020-7953-5_2

Download citation

  • DOI: https://doi.org/10.1007/978-1-4020-7953-5_2

  • Publisher Name: Springer, Boston, MA

  • Print ISBN: 978-1-4757-1074-8

  • Online ISBN: 978-1-4020-7953-5

  • eBook Packages: Springer Book Archive

Publish with us

Policies and ethics

Search

Navigation