The risk-averse (and prudent) newsboy
Management Science
On the Effects of Downstream Entry
Management Science
Impact of Uncertainty and Risk Aversion on Price and Order Quantity in the Newsvendor Problem
Manufacturing & Service Operations Management
Information Sharing in a Supply Chain with Horizontal Competition
Management Science
The Impact of the Secondary Market on the Supply Chain
Management Science
Competition and Structure in Serial Supply Chains with Deterministic Demand
Management Science
Positive vs. Negative Externalities in Inventory Management: Implications for Supply Chain Design
Manufacturing & Service Operations Management
Strategic Technology Choice and Capacity Investment Under Demand Uncertainty
Management Science
Leadership and Competition in Network Supply Chains
Management Science
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We study competition in a supply chain where multiple manufacturers compete in quantities to supply a set of products to multiple risk-averse retailers who compete in quantities to satisfy the uncertain consumer demand. For the symmetric supply chain, we give closed-form expressions for the unique equilibrium. We find that, provided there is a sufficiently large number of manufacturers and retailers, the supply chain efficiency (the ratio of the aggregate utility in the decentralized and centralized chains) can be raised to 1 by inducing the right degree of retailer differentiation. Also, risk aversion results in triple marginalization: retailers require a strictly positive margin to distribute even when they are perfectly competitive, because otherwise they are unwilling to undertake the risk associated with the uncertainty in demand. For the asymmetric supply chain, we show how numerical optimization can be used to compute the equilibria, and we find that the supply chain efficiency may drop sharply with the asymmetry of either manufacturers or retailers. We also find that the introduction of asymmetric product assortment reduces the degree of competition among retailers and thus has an effect similar to that of reducing the number of retailers. We show that, unlike in the symmetric chain, the asymmetric chain efficiency depends on product differentiation and risk aversion because of the interaction between these features and the asymmetry of manufacturers and retailers.