A Game-theoretical Model of Buy-back Contracts in Assembly Systems with Uncertain Demand

Zhiqi Lei

2022

Abstract

An assembler needs to purchase complete sets of components, each component produced by different suppliers. Each party in the assembly system shares the risks of demand uncertainty through a buy-back contract. In this paper, a game-theoretical model is established to analyze how the buy-back contract is developed under two different mechanisms. The first is one where the assembler sets the buy-back price of each component, and the second is one where the suppliers set the buy-back prices of their own components. In both cases, by backward induction, the decision problem is formulated as a constrained optimization problem. The optimal order quantity is derived. Under the first setting, the system performance is demonstrated to be increasing in the assembler’s share of the profit per unit of product. Under the second setting, the system performance is demonstrated to be decreasing in the assembler’s share of the profit per unit of product. By comparing the first-order conditions, it is shown that the system performances under the two settings are equal if the assembler’s share of profit is larger than the reciprocal of the number of parties in the system. Finally, numerical examples are provided to illustrate some of the main results.

Paper Citation

in Harvard Style

Lei Z. (2022). A Game-theoretical Model of Buy-back Contracts in Assembly Systems with Uncertain Demand. In Proceedings of the International Conference on Big Data Economy and Digital Management - Volume 1: BDEDM, ISBN 978-989-758-593-7, pages 137-144. DOI: 10.5220/0011165400003440

in Bibtex Style

@conference{bdedm22,
author={Zhiqi Lei},
title={A Game-theoretical Model of Buy-back Contracts in Assembly Systems with Uncertain Demand},
booktitle={Proceedings of the International Conference on Big Data Economy and Digital Management - Volume 1: BDEDM,},
year={2022},
pages={137-144},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0011165400003440},
isbn={978-989-758-593-7},
}

in EndNote Style

TY - CONF

JO - Proceedings of the International Conference on Big Data Economy and Digital Management - Volume 1: BDEDM,
TI - A Game-theoretical Model of Buy-back Contracts in Assembly Systems with Uncertain Demand
SN - 978-989-758-593-7
AU - Lei Z.
PY - 2022
SP - 137
EP - 144
DO - 10.5220/0011165400003440