Document Type: Article
Department of Industrial Engineering, Iran University of Science and Technology, Tehran, Iran
Department of Decision Sciences and Managerial Economics, the Chinese University of Hong Kong, Hong Kong
Group purchasing organizations (GPOs) are well-known intermediary firms that play an important role in some supply chains. An important question that arises regarding the GPOs, is whether a GPO that benefits from group buying discounts, always benefit the OEMs in the presence of market competition. In other words, does a GPO always lead to a win-win outcome for OEMs and the GPO? To answer this question, a bargaining framework has been used to investigate competing OEMs' procurement's strategies. The entrance of a GPO in a two tier supply chain that consists of two competing OEMs with a common supplier that has a quantity discount menu is analyzed. The result shows that low purchasing cost GPO may harm OEMs in a cost-benefit perspective. This unintuitive result can be explained by different impacts that a GPO has in purchasing process. Although, it can enlarge the size of trade surplus; but, it has an important influence on the size of the slice of the pie (profit sharing). Moreover, an OEM's procurement strategy in equilibrium not just only depends on his bargaining power; but also depends on his competitor OEM. Interestingly, a strong OEM may not prefer procuring through GPO, as well as a weak OEM does.