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Sourcing Strategies in the Presence of Social Comparisons, Random Yields and Supplier Competition 2023-11-29

Subject: Sourcing Strategies in the Presence of Social Comparisons, Random Yields and Supplier Competition

Guest:Yulan WANG, Professor, The Hong Kong Polytechnic University

Host:Hailong SUN, Assistant Professor, ACEM

Time:10:00-11:30am. Dec. 1, 2023 (Friday)

Venue:A507, Antai Building


Dual sourcing is a strategy commonly adopted by original equipment manufacturers (OEMs) to diversify their supply base, secure capacity supply, and induce competition between suppliers. However, because the sourced components are produced by different suppliers, the final products might differ in quality. Consumers may become dissatisfied if they receive a lower quality product and conduct social comparison with others. In this paper, we examine how such consumer aversion to disadvantageous inequality affect the OEM’s sourcing decision and suppliers’ wholesale price decision. We show that consumer aversion to disadvantageous inequality reduces the OEM’s incentive to dual source and intensifies competition between suppliers, thereby hurting suppliers but benefiting the OEM. Consumers, however, can be either hurt or benefited by their inequality aversion. When the degree of inequality aversion is sufficiently large, the OEM is forced to switch from dual sourcing to single sourcing and eliminate inequality between consumers. We further show that when the suppliers have insufficient capacity, a pure strategy Nash equilibrium may not exist for the supplier's wholesale pricing game. Nonetheless, we can characterize a mixed strategy wholesale price equilibrium and show that limited capacity levels can alter the role of consumer inequality aversion.

Guest Bio:

Dr. Yulan (Amanda) Wang is currently a full professor and associated head (research) of the Department of the Logistics and Maritime Studies at Faculty of Business of the Hong Kong Polytechnic University. Her research interests lie in operations and supply chain management, socially sustainable operations, behavioral operations, and operations-IS-marketing interface. She has published papers in leading academic journals such as Management Science, Operations Research, Manufacturing & Service Operations Management, and Production and Operations Management. Her works have been supported by the Research Grants Council (RGC) of Hong Kong and the National Natural Science Foundation of China. Yulan serves as a vice president of the POMS Hong Kong Chapter, a senior editor of Production and Operations Management, and an associate editor of Decision Sciences, Naval Research Logistics and Omega. She is an editorial advisory board member of Transportation Research - Part E. She received her PhD degree in Business Administration from Duke University, and BS and MS degrees from Shanghai Jiao Tong University.