The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/0972-7981.htm

JAMR
16,3 Impact of bargaining power on
supply chain profit allocation:
a game-theoretic study
398 Sanjay Prasad
IBM India Private Limited, Bengaluru, India
Ravi Shankar
Department of Management Studies, Indian Institute of Technology Delhi,
New Delhi, India, and
Sreejit Roy
IBM India Private Limited, Bengaluru, India

Abstract
Purpose – The purpose of this paper is to study the impact of bargaining powers of firms in supply chain
coordination. It studies selected aspects of bargaining powers, namely, impatience, breakdown probability
and outside options, and uses a bargaining-theoretic approach to analyze surplus allocation in a coordinated
supply chain.
Design/methodology/approach – This paper proposes one-supplier one-buyer infinite horizon supply
chain coordination game, where suppliers and buyers negotiate for the allocation of supply chain surplus
arising out of supply chain coordination. Various aspects of the bargaining power of the negotiating parties
are modeled and the paper studies impact of power levels on the results of the bargaining game.
Findings – A significance of impatience on the bargaining process and the surplus split has been
established. This paper also demonstrates a rather counter-intuitive aspect of bargaining that the impatience
(as perceived by the other party) can improve the bargaining position and therefore share of profits.
Research limitations/implications – This paper has limited its analysis to three key components of
bargaining power. Future works can study other aspects of bargaining power, namely information
asymmetry, learning curve, inside options, etc. Further, the paper has considered an infinite horizon
model – this assumption can be relaxed in future research.
Practical implications – Equations to derive optimal split of the surplus have been derived and can be
leveraged to design an autonomous bargaining agent to discover equilibrium profit splits in a cloud or
e-commerce setting. Further, insights from this paper can be leveraged by managers to understand their
relative bargaining power and drive to obtain the best profit split.
Originality/value – This paper establishes that impatience (in terms of counter-offer probability) has a
significant impact on the bargaining position and on the split of the surplus that the firm can get for
themselves. It establishes the advantage of higher levels of impatience, provided the other party recognizes
the impatience and factors it in their decision-making process.
Keywords Negotiation, Supply chain management, Game theory, Channel coordination
Paper type Research paper

Journal of Advances in
Management Research
Vol. 16 No. 3, 2019
pp. 398-416
© Emerald Publishing Limited
0972-7981
DOI 10.1108/JAMR-10-2018-0096
1. Introduction
A supply chain consists of the number of organizations or enterprises linked to each other.
Each element in the chain performs the function of increasing the utility of the commodity
before passing it on to the next. Some elements/enterprises in the supply chain may not be as
powerful as the others. Increasing globalization and specialization over the last two decades
has led to a further increase in strategic sourcing, alliances and inter-firm collaborations.
Kreutter et al. (2012) discuss consolidation in the IT services outsourcing industry and
predicts that the industry is moving toward value creation networks (VCNs), flexible networks
organized toward a business problem. The success of these VCNs (IT services supply chains)
will partly depend on the firm’s ability to effectively integrate technology and services from
multiple vendors and develop sustainable partnerships and a strong ecosystem.
 Most common models of supply chain power structures commonly discussed in the Impact of
literature are Stackelberg and vertical integration (VI). In a Stackelberg supply bargaining
chain, organizations operate in a non-co-operative environment and Stackelberg leader gives power
a take-it-or-leave-it option to other players. In a VI supply chain, decisions are taken as if the
whole supply chain is one single organization. However, as Baron et al. (2016) point out, in
many supply chains, the final decision is the outcome of a bargaining process between parties
involved. Respective bargaining powers of firms decide the outcome and respective splits of the 399
supply chain profit. Factors, which influence supplier’s bargaining power, are the importance of
the raw material, substitute availability, alternate suppliers, supplier concentration and
volumes ordered, whereas factors determining customer’s bargaining power are the number of
buyers, integration of the customer base, purchasing power and availability of substitution.
Nair et al. (2011) study the influence of bargaining power and inter-firm relationship on
investments in strategic assets. Ramsay (2004) makes a case for the study of negotiation in the
supply chain management field and concludes that the journey from uninformed adversarial
buyer–supplier attitudes toward enlightened co-operative relations in supply chains may be
not as real as it is assumed in popular supply chain literature.
While supply chain coordination problem has been well examined by the researchers,
there is an insufficient amount of work on how supply chain surplus needs to be distributed
in consideration of differing levels of bargaining power of supply chain partners. This paper
studies the distribution of supply chain surplus, arising due to coordination, among supply
chain partners. It takes a bargaining-theoretic approach to profit allocation problem, and
studies the impact of individual bargaining powers of negotiation parties. It incorporates
selected aspects of bargaining powers, namely impatience, breakdown probability and
external options, and develops a model to derive equations for optimal profit allocation.
Next section presents the literature review and establishes the research problem.
Section 3 introduces the bargaining model and presents salient modeling aspects. Section 4
formulates the base model and analyzes it. Section 5 extends the bargaining model and
incorporates the additional aspect of power, namely outside options. Section 6 further extends
and generalizes the model developed in Sections 4 and 5. Section 7 concludes and presents
managerial implications.

2. Literature review
Marek and Konecka (2009) point out that “Customer is King” theory is not necessarily true,
and customers must keep in mind that excessive bargaining may lead to the shrinking of
supplier base, thereby robbing the customer of his powers. Further, Maloni and Benton (2000)
advise that establishing a good, strong relationship between the supplier and customer where
both are engaged in mutual co-operation will benefit the supply chain and the two parties as
well. On the other hand, Cox (1999) points out that business is not about a passing value to
customers, but it is about appropriating value for oneself as much as possible and sustainable.
Therefore, while a company like Toyota, operating in a competitive environment, would
consistently work on delighting customers, some other firms like Microsoft, Intel and Cisco in
IT industry were in a position in late 1990s and first half of 2000, where it could get away with
just satisfying their customers (Cox, 1999). Further, Kim et al. (1999) point out that the
perception gap between supply chain partners impacts the partnership needed for a
successful buyer–supplier relationship. They also study a Korean semiconductor
manufacturer and its suppliers to establish that these perceptions are driven by the
partner’s production capability and the product requirement.

2.1 Bargaining power

Power of a firm in the supply chain dictates how much value it must share with other supply
chain entities. Further, Kim and Heungshik (2005) also state that each supply chain
JAMR partner’s resource commitment to activities such as quality improvement and new product
16,3 development may vary based on the balance of bargaining power.
A concept of bargaining power has its roots in labor economics, more specifically the
analysis of the relationship between employer and employee (Autushka-Sikorski, 2014).
However, the concept itself has not yet been clearly and uniquely defined. Weber (1947)
defines power as “the probability that one actor within a social relationship would be in a
400 position to carry out his own will despite resistance.” Pfeffer (1981) defines power as “a
relationship among social actors in which one social actor, A, can get another social actor, B,
to do something that B would not otherwise have done.” Fletcher (1961) sums up bargaining
power as market-imposed conditions, benefits and constraints on the negotiating parties.
Wolff (2016) studies the bargaining powers of buyers and sellers on the online diamond
market and finds that the average bargaining power of buyers is less than that of sellers.
Based on the work done by Muthoo (2000, 2001), Blokhuis et al. (2008) identify several factors
as the most important components of the bargaining power of negotiating parties, namely
impatience, breakdown risk, outside options, commitment tactics, inside options, information
asymmetry, reputation, learning curve and future negotiation opportunities. Galinsky and
Magee (2006) define three types of power in negotiations, first being lack of dependence on other
(or best alternative to a negotiated agreement), second being role or position in the organizational
hierarchy and last being a psychological sense of power.
Based on the coverage in literature and analytical tractability, the following three factors
are chosen for analysis in this paper:
(1) Risk of breakdown: while bargaining, there is a risk of the negotiations breaking
down in a random manner for one reason or another. Reasons for such a breakdown
may be due to a player getting fed up with protracted negotiation, a third-party
intervention, additional information or any other random reason (Muthoo, 2001).
Zwick et al. (1992) demonstrate that persons not willing to take the risk of
negotiations to end (leaving them with nothing) are inclined to be satisfied with a
smaller part of the payoff (risk aversion).
(2) Outside options: during a negotiation process, either player can quit negotiation
taking up the best option available elsewhere. This best option is known as the
outside option. Binmore et al. (1989) conclude that having a credible alternative
strengthens the negotiation position with respect to the other party. Cunyat (1998)
establishes the impact of an outside option on a bargaining game, and further argues
that the changes due to the outside option depend on the nature of the outside option
and whether it is available to one or both players.
(3) Impatience: McLeish and Oxoby (2007) define inter-temporal discounting as the
measure of impatience. They define inter-temporal discounting as “the manner in
which individuals trade-off future and present costs and benefits, with the value of
future costs and benefits being lower than that of identical, but more temporally
proximate, costs and benefits.” Rambaud and Torrecillas (2016) state that decreasing
discount rates mean decreasing impatient. If one actor has a different inter-temporal
discounting rate than the other, there is an impact on the bargaining power.

2.2 Bargaining for decision making

There has been a great deal of research in planning and coordination issues in the supply
chain. The majority of this research has been a model-based approach on supply chain
contracting (Cachon, 2003). This line of research focuses on devising coordination
mechanisms that provide each player incentive to work in a way that the supply chain
behaves like a vertically integrated supply chain resulting into supply chain surplus as
opposed to an uncoordinated supply chain. Further, there has been a fair amount of work Impact of
applying the game-theoretic approach to supply chain coordination (Esmaeili et al., 2009; bargaining
Huang et al., 2011). However, these works do not adequately cover profit sharing within the power
supply chain. There have been some recent works leveraging bargaining models to address
profit sharing problem within a coordinated chain (Ertogral and Wu, 2001; Hermel, 2013;
Baron and Berman, 2014; Monroy et al., 2017). Pan and Choi (2016) build and study an agent-
based two-phase (co-operative phase and competitive phase) negotiation model on price and 401
delivery date in a fashion supply chain.
Negotiation or bargaining is another form of decision making with two or more parties,
with potentially differing goals, need to make decision collaboratively. Therefore,
bargaining parties make concessions to achieve a common ground for all parties involved
(Kersten et al., 1991). Bargaining theory provides a powerful tool for the analysis of supply
chain coordination problems, and to develop mechanisms to ensure that none of the parties
deviate from the agreement even in the absence of a legally enforceable contract. There have
been two main streams of research on bargaining: axiomatic (co-operative game) models,
and strategic (non-co-operative game) models.
Nash (1950) establishes a framework for the axiomatic bargaining solution. Osborne and
Rubinstein (1990) summarize Nash’s approach as “[…] defines a ‘bargaining problem’ to be
the set of utility pairs that can be derived from possible agreements, together with a pair of
utilities which is designated to be the ‘disagreement point.’ A function that assigns a single
outcome to every such problem is a ‘bargaining solution’ […].” Nash proposes that any
bargaining solution should satisfy four basic axioms, and then derives the unique solution,
also known as the “Nash Bargaining Solution,” which satisfies the stated axioms. Several
authors have further revised and refined the Nash proposal by replacing, relaxing or adding to
the axioms and the analysis (Kalai and Smorodinsky, 1975; Binmore, 1987). The axiomatic
approach leaves out the actual process of negotiations while focusing on the expected outcome
based on the defined solution properties based on the player’s attitude to risk.
Non-co-operative, sequential bargaining process is studied by modeling bargaining as a
sequence of offers and counter offers (Stahl, 1972). Rubinstein (1982) first laid out a
framework for non-co-operative bargaining models. He proposes an alternating-offer
sequential bargaining procedure, where the players take turns in making offers and counter
offers to one another until an agreement is reached. Gain to the player is discounted by time
and therefor the player’s attitude to time drives a compromise. Binmore et al. (1986) model
and study two strategic bargaining models, first with time preference and second with the
exogenous risk of breakdown. They give a condition for unique perfect equilibrium for both
strategic bargaining models and provide a guide for the application of Nash bargaining
solution to economic models.

2.3 Research gaps and question

There have been some limited research works (Leng and Zhu, 2009) on how the supply chain
surplus can be divided among the two parties. However, there is a need for more research in this
area, as a perfect coordination mechanism is of no use, if the either party does not stick by it.
This paper studies the distribution of supply chain surplus, arising due to coordination,
among the supply chain partners. It takes a bargaining-theoretic approach to profit allocation
problem, and studies the impact of individual bargaining powers of negotiation parties. It
incorporates selected aspects of bargaining powers, namely impatience, breakdown
probability (more accurately, offer acceptance probability) and external options, and
develops a model to derive equations for optimal profit allocation. A bargaining-theoretic
approach is deployed to analyze the impact of bargaining power, especially impatience,
outside options and breakdown probability on surplus allocation. Impatience and breakdown
probability are also proxying for a firm’s financial stability, partnership options and the value
JAMR that the firm puts on this partnership. For example, if a market-leader firm, say Firm A, is
16,3 negotiating with another firm for a key technology partnership. The other firm may see it as a
very strategic opportunity and will be impatient to close the deal. On the other hand, if another
large firm, say Firm B, is also courting the same smaller firm for an exclusive partnership,
Firm A may be more impatient to close an exclusive partnership and may be willing to settle
with a lower pie of the surplus.
402 Accordingly, this paper considers the following research question:
RQ1. What is the impact of bargaining power (measured in terms of breakdown
probability, outside options, and inter-temporal discounting) on supply chain
surplus split among negotiating parties?

3. Bargaining game
3.1 Model setting
This paper proposes to model the process of splitting coordination surplus as a bargaining
game on the lines of the Rubenstein’s (1982) alternating-offer model. We consider a bargaining
game where a buyer and a single sourcing supplier enter negotiations for a supply chain
contract. We assume that both players are rational, self-interested and risk neutral (expected
value maximizers), but they have different levels of bargaining power that is modeled in the
base model by the probability of it accepting an offer. Like in the Rubenstein’s model, while
multiple time periods are modeled for study, bargaining concludes immediately as soon as it
starts since both parties are rational and can compute the equilibrium strategies of the other
party. This paper concerns itself primarily with splitting of the system-wide surplus,
additional profit generated due to co-operation and by implementing the system-optimal
solution, under varying bargaining power levels.

3.2 Model novelty

This paper’s bargaining model, while based on Ertogral and Wu (2001), is significantly
different from Ertogral and Wu (2001) and other related works (Binmore et al., 1986; Feng
and Lu, 2013; Hermel, 2013; Baron and Berman, 2014) in the following ways:
• Ertogral and Wu (2001) assume that both the parties have the same probability of
offer acceptance. In real life, different parties have different sets of business priorities
and different costs of capital. Therefore, equal probability of offer acceptance by both
parties is a serious limitation of Ertogral and Wu (2001). We have modeled and
analyzed different probabilities of offer acceptance for both the teams.
• Ertogral and Wu (2001) have not considered the time discounting for the bargaining
model. However, every firm has its own cost of capital and trade-off between current
and future payoffs. Consequently, every party in the supply chain will have a
different time discounting in real life. Therefore, our model not only considers time
discounting, but it also allows for different time discounting for both the parties.
• Hermel (2013) primarily focuses on outside options for the pivotal supply chain partner,
and does not consider other factors such as breakdown probability and inter-temporal
discounting. Our paper studies the equilibrium conditions under the simultaneous
interaction of various factors driving the bargaining power of supply chain partners.
• Baron and Berman (2014) assume bargaining powers as α and 1−α for the supply
chain partners and solve for equilibrium conditions. However, they have not addressed
how to obtain α. This paper has deep dived into the components of bargaining power
and has defined the components which constitute the bargaining power. Consequently,
the results of this paper will be easier to use in an industry setting.
 • Binmore et al. (1986) look at inter-temporal discounting and probability of breakdown Impact of
separately. This paper studies an integrated model with inter-temporal discounting, bargaining
outside options and breakdown probability. power
In summary, this paper’s model focuses on the impact of bargaining power on supply chain
surplus split and studies three dimensions of bargaining power (breakdown/counter-offer
probability, outside option and inter-temporal discounting) simultaneously as compared to
other models in the existing literature, which have considered only one of the above 403
dimensions at a time.

4. Base model
The base model considers a bargaining game where a buyer and a supplier enter
negotiations for a supply chain contract. It is assumed that both players are rational,
self-interested and risk neutral (expected value maximizers), but they have different levels of
bargaining power that is modeled in the base model by the probability of it accepting an
offer. Base bargaining model, therefore, considers only breakdown (counter-offer)
probability aspect of the bargaining power discussed in Section 2.1.
Base bargaining model assumes that there are no chances of breakdown of bargaining.
However, the time value of the money and individual impatience level will ensure that
bargaining converges to an acceptable solution for all parties. Further, we also model the
time value of the decision in the form of interest rate. However, interest rate is assumed to
be same for both the parties in the base model and does not result in any power equation.
The variable notation used in this paper is listed in Table I.
If cb is higher than cs, buyer is more eager as compared to the supplier to reach an
outcome and will accept an offer sooner and vice versa. Therefore, cb(cs) is a proxy for the
bargaining power of the buyer (supplier).
As in Ertogral and Wu (2001), the following additional notations are introduced:
• Mb (Ms): maximum payoff the buyer (the supplier) receives in the subgame perfect
equilibrium (SPE) of any subgame starting with her offer.
• mb (ms): minimum payoff the buyer (the supplier) receives in the SPE of any subgame
starting with her offer.
• Si: expected payoff for the supplier in ith iteration, where i ¼ 0, 1, …, and so on.
The base bargaining model is illustrated in Figure 1. All payoffs are from the supplier’s
point of view. In Step 1, buyer makes an offer, S0, and supplier can either accept the offer
with probability, cs, or counter-offer with the probability (1−cs). If the supplier accepts the
offer, game stops. Otherwise, buyer can either accept the suppliers’ offer with probability,
cb, or counter-offer with the probability, (1−cb), and the game continues. Figure 1 depicts
the payoff for the supplier in each case. The following equation is for a scenario where
supplier receives minimum payoff:




S 0 ¼ cs  ðpM b Þþ 1cs  cb  ms þ 1cb  S 1 : (1)

Symbol Description

cs Probability of supplier accepting an offer

cb Probability of buyer accepting an offer Table I.
δ Interest rate per period Key variable used in
Π Total supply chain surplus generated due to co-operation the base model
JAMR
16,3
Buyer Supplier Buyer

Counter offer

404 Counter Offer

1–b S1

1–s (1– ) × S +  × m
Offer b 1 b s
b Accept

Figure 1. S0 s ms
A tree to illustrate Accept
bargaining game
(all payoffs –Mb
from supplier’s
point of view)

S0 is the expected payoff of the supplier in the beginning and S1 is the expected payoff of the
supplier in the first iteration. The first term in the RHS. of Equation (1) is expected split in case of
offer acceptance by supplier, the second term denotes expected split in case of counter-offer by
the supplier. Under equilibrium, time-discounted present value for expected payoffs in various
periods will remain same. Hence, for equilibrium conditions, the following relation will hold true:
S 1 ¼ ð1 þdÞ  S 0 :
Further, under equilibrium conditions, buyer will offer the split as per supplier’s expected
payoff in period 0. Hence, S0 will be equal to π−Mb. Therefore, Equation (1) can be further
simplified as follows:




S 0 ¼ cs  ðpM b Þ þ 1cs  cb  ms þ 1cb  ð1 þdÞ  S 0 ; or




pM b ¼ cs  ðpM b Þþ 1cs  cb  ms þ 1cb  ð1 þdÞ  S 0 ; or





ðpM b Þ 1cs 1 1cb ð1 þdÞ ¼ 1cs  cb  ms : (2)
We introduce new variables k_b and k_s such that:



kb ¼ 1 1cb  ð1 þdÞ



ks ¼ 1 1cs  ð1 þdÞ : (3)
The second term in the RHS of Equation (3) (say, for kb) is the probability of counter-offer by
buyer multiplied by the time value of unit payoff in next period which can be interpreted as
expected time value of the payoff in the next period when supplier makes an offer.
Therefore, kb can be interpreted as the complement of expected time value of payoff in next
period when supplier makes an offer. Further, Equation (2) can be rewritten as:
kb  M b þcb  ms ¼ kb  p:
The above equation can be interpreted as follows. In the buyer-initiated bargaining game,
the maximum possible payoff of buyer, Mb, is less than the overall supply chain surplus, π
by a fraction, cb/kb, of the minimum possible payoff of supplier, ms, in a supplier-initiated
game. The fraction, cb/kb, increases with the probability of offer acceptance by buyer, cb,
and the time value of money, δ.
 Further, due to the symmetric nature of the relationship, the same exercise can be Impact of
repeated for four scenarios corresponding to supplier initiated or buyer initiated, and bargaining
minimum or maximum payoff for supplier, and we will get the following equations: power
kb  M b þcb  ms ¼ kb  p; (4)

kb  mb þcb  M s ¼ kb  p; (5)
405
cs  M b þks  ms ¼ ks  p; (6)

cs  mb þcs  M s ¼ ks  p: (7)
Based on the above equations, it can be easily deduced that in equilibrium:
X b ¼ M b ¼ mb
X s ¼ M s ¼ ms ; (8)
where Xb and Xs are the equilibrium payoffs for buyer and supplier, respectively. Further,
we can solve the system of Equations (4)–(7) to get the values for Xb and Xs in terms of k, p
and π:


ks cb kb  p
Xb ¼ ; (9)
cb cs kb ks


kb cs ks  p
Xs ¼ : (10)
cb cs kb ks
It can be observed that the equilibrium payoffs for buyer(supplier) are a function of the
probabilities of offer acceptance by itself, and that by the other player. Further, it is also
driven by the time-discounting rate. Therefore, breakdown(counter-offer) probability of the
players has an impact on the equilibrium strategy. Further, in the equilibrium conditions, a
player will accept a proposal if there is no way the player can improve upon it in the future
iterations. As this stands true for both players, an equilibrium strategy must be the one that
constitutes Nash equilibrium in all iterations of the repeated game. We formulate the
following two propositions for the base model:
P1. Breakdown (counter-offer) probability of a player has a direct relationship with the
player’s split of the surplus, ceteris paribus.
Proof. We can rewrite Equation (3) as:



kb ¼ 1 1cb  ð1 þdÞ ¼ cb dcb ;
where cb is equal to (1−cb).
Using the above expansion of kb, we can rewrite Equation (9) as:

ks  d  cb
Xb ¼
p
cb cs ks þks  d  cb
1
¼


 p: (11)
cb =cb  cs ks =d:ks þ1
JAMR By definition, if the buyer’s probability of offer acceptance, cb, increases, cb decreases.
16,3 Therefore, the denominator increases and Xb decreases. Hence, as the buyer (supplier)’s
counter-offer probability increases (everything else remaining same), her split of the surplus
goes up: ∎
P2. Breakdown (counter-offer) probability of a player has an inverse relationship with
the other player’s split of the surplus, ceteris paribus.
406 Proof. To analyze the impact of supplier’s counter-offer probability on the buyer’s split of
the surplus; we look at the fraction (cs−ks/ks) more closely:

cs ks dcs
¼
ks cs dcs
1
¼
:
cs =d:cs 1
If cs increases, (cs−ks/ks) decreases. Therefore, the denominator in Equation (11) decreases
and Xb increases. Hence, with an increase in the supplier (buyer)’s counter-offer probability
(everything else remaining same), buyer (supplier)’s split of the surplus goes down. ∎

4.1 Numerical analysis to study the impact of counter-offer probability on the split of surplus
We assume discounting rate, δ, to be 0.1 per period based on Schmidt (2013) and analyze
supplier and buyer’s split under increasing supplier’s counter-offer probability, or, in other
words, increasing probability of offer acceptance by supplier, cs. As the bargaining problem
is symmetric, all analysis results for supplier will hold true for buyer too.
Figure 2(a) and (b) illustrates the impact of increasing supplier’s counter-offer
probability, (1−c_s). The supplier’s split is directly proportional to supplier counter-offer
probability and buyer’s split is inversely proportional to the same as laid out in P1 and P2,
respectively. Moreover, the relationship is mostly linear as expected from the proof laid out
in the above two propositions. Further, it can be seen that if cs ¼ 1, i.e. supplier will accept
any offer; its share of surplus is 0 and that of buyer is 1 as expected in the game theory.
It can be seen from Figure 3 that sum of supplier’s split and buyer’s split of surplus does
not necessarily add to 1 (unless one of cs and cb is equal to 1 – interestingly there is no
solution if both the probabilities are 1, meaning both will accept any offer). Sum of the splits
is farther away from 100 percent, as the counter-offer probabilities are high, which means
that parties are more patient indicating dragged negotiations. Difference between total

(a) Supplier’s split, Xs (b) Buyer’s Split, Xb

1 1

0.9 0.9

0.8 0.8

0.7 0.7

0.6 0.6

0.5 0.5

0.4 0.4

0.3 0.3
Figure 2. 0.2 0.2
Impact of counter-
0.1 0.1
offer probability of
0 0
supplier, (1−cs), on 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
supplier and buyer’s Counter offer probability of supplier, (1–s) Counter offer probability of supplier, (1–s)
split of surplus
Notes: (a) Supplier’s split; (b) buyer’s split
 1
Total Split, Xb + Xs Impact of
bargaining
0.98 power

0.96

0.94
407

0.92

0.9 Figure 3.
Total split as function
of counter-offer
0.88 probability of
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
supplier, (1−cs)
Counter offer probability of supplier, (1–s)

surplus and the sum of supplier and buyer’s split of surplus is the opportunity for a supply
chain intermediary to mediate the bargaining process and thereby increase profits for
everyone involved. A supply chain intermediary can bring the expert knowledge of each
party’s bargaining power, reduce information asymmetry and expedite the negotiation
process. It will ensure that the sum of buyer and supplier splits of surplus comes as close to
1 as possible.

5. Model extension for outside options and negotiation breakdown

In this section, we extend the base model to account for outside options (and negotiation
breakdown) for buyers and suppliers. The extended model considers both breakdown(counter-
offer) probability and outside option aspects of the bargaining power discussed in Section 2.1.
We drop the consideration of time value of money, δ from the model (it will be
reintroduced in Section 6). However, like Wu (2004) we assume that if the supplier/buyer
does not accept the offer, there is an equal probability whether the negotiations will
breakdown or it will continue to next round with a counter-offer. This also allows us to solve
this model analytically and provide closed-form solutions. Ws and Wb are the external
options/payoff for the supplier and buyer, respectively. We use Seq in the extended model to
denote expected payoff for the supplier under equilibrium conditions. Figure 4 illustrates the
bargaining model.
The equilibrium payoff for supplier is as follows:





1cs 1cs 1cb 1cb
S eq ¼ cs  ðpM b Þ þ Wsþ  cb  m s þ  Ws þ  S eq ; or
2 2 2 2







1cs 1cb 1cs 1cs 3cb
ðpM b Þ 1cs  ¼  cb  m s þ W s ; or
4 2 4



ðpM b Þ 3þ cb ¼ 2cb  ms þ 3cb  W S : (12)
Equation (12) can be analyzed to see that the coefficient of supplier’s minimum payoff
((π−Mb) in case of buyer-initiated game, and ms in case of supplier-initiated game) contains a
linear function of the probability of offer acceptance by buyer, cb. Therefore, supplier’s
minimum payoff varies directly with the counter-offer probability of buyer, (1−cb).
JAMR
16,3
Buyer Supplier Buyer

Counter offer
408 0.5 × (1–b)
Counter Offer Seq
0.5 × (1–s)
0.5 × (1–b)× (Seq +Wb) Accept
b
+ b × mb
Offer s ms
Accept
Seq
Figure 4. –Mb 0.5× (1–b) Breakdown
A tree to illustrate 0.5× (1–s )
bargaining game with Wb
Breakdown
outside options
(all payoffs from
supplier’s point Ws
of view)
Note: Please refer to Section 4 for ms, Mb notation

Further, due to the symmetric nature of the relationship, the same exercise can be repeated
for four scenarios corresponding to supplier initiated or buyer initiated, and minimum or
maximum payoff for supplier, and as in the above section, we can deduce that:
X b ¼ M b ¼ mb
X s ¼ M s ¼ ms : (13)
Therefore, the final equations are as follows:




3 þcb  X b þ2  cb  X s þ 3cb  W s ¼ 3 þcb  p; (14)




3 þcs  X s þ2  ps  X b þ 3cs  W b ¼ 3 þcs  p: (15)
Solving the above equations, we get:




3 þcs 3cb 2cb 3cs
Xb ¼

 ðpW s Þþ

 W b; (16)
3 þcs 3 þcb 4cs cb 3 þcs 3 þcb 4cs cb




3 þcb 3cs 2cs 3cb
Xs ¼

 ðpW b Þþ

 W s: (17)
3 þcs 3 þcb 4cs cb 3 þcs 3 þcb 4cs cb
Based on the above Equations (16) and (17), it can be observed that the equilibrium
payoffs for buyer (supplier) are a function of the probabilities of offer acceptance by itself,
and that by the other player. Further, it is also driven by the outside options; positively by
its own outside and negatively by that of the other player. Further, we can propose the
following propositions:
P3. Buyer (supplier)’s split of surplus increases as its external option (payoff in case of
breakdown) increases.
Proof. As the external option for buyer, Wb, increases, buyer’s split of surplus, Xb increases Impact of
due to increase in the second term in the RHS of Equation (16): ∎ bargaining
P4. Buyer (supplier)’s split of surplus increases as the external option (payoff in case of power
breakdown) of the other party decreases.
Proof. As the external option for supplier, Ws, increases, buyer’s split of surplus Xb
decreases due to a decrease in the first term in the RHS of Equation (16). ∎
409
5.1 Numerical analysis to study the impact of outside option on the split of surplus
We analyze supplier and buyer’s split under increasing supplier’s external option to a total
surplus ratio (Ws/π).
Figure 5(a) and (b) illustrates the impact of increasing supplier’s external option. Supplier’s
split is directly proportional to supplier’s external option and buyer’s split is inversely
proportional to the same as laid out in P3 and P4, respectively. Further, as discussed in
Section 4.1, the sum of supplier’s split and buyer’s split need not add up to 1, and this shortfall
creates an opportunity for a supply chain intermediary to improve the profit of each party as
compared to the disintermediated scenario of supply chain partners negotiating directly.

6. Model extension for differential inter-temporal discounting

In this section, we further extend and generalize the model developed in Sections 4 and 5 to
incorporate differential inter-temporal discounting. This model now considers all three
aspects of bargaining power, breakdown(counter-offer) probability, outside options and
inter-temporal discounting, as discussed in Section 2.1. Further, in this section, we relax
assumptions around the equal probability of breakdown and counter-offer.
As discussed in Section 2.1, power balance can be looked as a difference in impatience
(inter-temporal discounting), breakdown probability and outside options. Previous sections
modeled breakdown probability (0.5 ×(1 – probability of accepting an offer)) and outside
options. This section further refines the model by bringing back in consideration discounting
rate or time value of money, δ (dropped in Section 5). However, in this model, the discounting
rate is different for both the parties. Therefore, we introduce two additional notations:
ds : discounting rate for supplier;
db : discounting rate for buyer:

The difference in discounting rate signifies the difference in impatience levels. Higher the
discounting rate, more impatient is the concerned party. We use S0 in the extended model to

(a) Supplier’s Split, Xs (b) Buyer’s Split, Xb

1 1
0.9 0.9
0.8 0.8
0.7 0.7
0.6 0.6
0.5 0.5
0.4 0.4
0.3 0.3

0.2 0.2

0.1 0.1

0
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
0
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Figure 5.
Impact of (Ws/π) ratio
Supplier’s external option to total surplus ratio Supplier’s external option to total surplus ratio
on split of surplus
Notes: (a) Supplier’s split; (b) buyer’s split
JAMR denote expected payoff for the supplier in the beginning and S1 is the expected payoff of the
16,3 supplier in the first iteration. For equilibrium conditions, the present value of expected
payoffs in various periods will remain the same. Therefore, the following relation will hold
true under equilibrium ( from the supplier’s point of view):
S 1 ¼ ð1 þds Þ  S 0 :

410 Further, this section drops the assumption made in Section 5 that if supplier/buyer does not
accept the offer, there is an equal probability whether the negotiations will breakdown or it
will continue to next round with a counter-offer. A new variable, λ, is introduced, which
defines the conditional probability that a counter-offer will be made, given that the current
offer has not been accepted.
It can be easily observed that Section 5 model is a special case (λ ¼ 0.5, δs ¼ δr ¼ 0) of the
generalized model in this section. Further, Section 4 model can also be obtained from this
model by using λ ¼ 1 and δs ¼ δr ¼ δ.
Figure 6 illustrates the bargaining model (all payoffs are from the supplier’s point of
view). It is very similar to the bargaining model in Figure 2 with the additional consideration
of inter-temporal discounting rates.
The equilibrium payoff for supplier is as follows:


S 0 ¼ cs  ðpM b Þþ ð1lÞ  1cs  W s





þl  1cs  cb  ms þ ð1lÞ  1cb  W s þl  1cb  S 1 : (18)
S0 is the expected payoff of the supplier in the beginning and S1 is the expected payoff of the
supplier in the first iteration. The first term in the RHS of Equation (18) is expected split in
case of offer acceptance by supplier, the second term denotes the expected value of outside
option and the third term is expected split in case of counter-offer by the supplier. Further,
under equilibrium conditions, buyer will offer the split per supplier’s expected payoff in
period 0. Hence, equilibrium payoff for supplier in buyer-initiated negotiation is (π−Mb).

Buyer Supplier Buyer

 × (1–b)
Counter offer

Counter Offer S1= (1+ s)S0

 × (1–s)
(1–b) × (S1+ (1–) Accept
Wb) + b × ms b

Offer s ms
Accept
S0
Figure 6. –Mb (1–) × (1–b) Breakdown
A tree to illustrate (1–) × (1–s)
bargaining game Wb
with external Breakdown
options, breakdown
and inter-temporal Ws
discounting
Notes: Please refer to Section 4 for ms, Mb; and to Section 5 for Ws, Wb
Therefore, Equation (18) can be simplified as: Impact of








ðpM b Þ 1cs 1l2 1cb ð1þ ds Þ ¼ 1cs l  cb  ms þ ð1lÞ 1 þl 1cb  W s ; bargaining
power
or:






ðpM b Þ 1l2 1cb ð1 þds Þ ¼ l  cb  ms þ ð1lÞ 1þ l 1cb  W s : (19)
Equation (19) can be analyzed to see that the coefficient of supplier’s minimum payoff 411
((π−Mb) in case of buyer-initiated game, and ms in case of supplier-initiated game) contains a
linear function of the probability of offer acceptance by buyer, cb. Therefore, supplier’s
minimum payoff varies directly with an impatience level of buyer, (1−cb). Further, we
introduce two new variables, gbs and gsb, such that:


g bs ¼ 1l2 1cb ð1 þds Þ


g sb ¼ 1l2 1cs ð1 þdb Þ: (20)
The second term in the RHS of Equation (20) (say, for gbs) is the probability of counter-offer
by buyer multiplied by the time value of unit payoff for supplier in the next period, which
can be interpreted as the expected time value of payoff for supplier in the next period when
supplier makes an offer. Therefore, gbs can be interpreted as the complement of expected
time value of payoff for supplier in next period when supplier makes an offer. Further, it can
be seen that gbs (g sb) is an enhancement of kb(ks) introduced in the analysis of base model in
Section 4 to account for differential time-discounting rates. Further, using Equations (8) and
(20), Equation (19) can be simplified to:


g bs  X b þl  cb  X s þ ð1lÞ  1 þl  cb  W s ¼ g bs  p : (21)
The above equation can be interpreted as follows. Equilibrium payoff of buyer, Xb, is less
than the overall supply chain surplus, π, by a fraction, (λ×cb/gbs), of equilibrium payoff of
supplier, Xs, and another term which is the function of supplier’s outside option and its own
counter-offer probability. The fraction, (λ×cb/gbs), increases with the probability of offer
acceptance by buyer, cb, and supplier’s time value of money, δs.
As supplier-initiated negotiation is symmetrical, we can get the equation involving
buyer’s split as follows:


g sb  X s þl  cs  X b þ ð1lÞ  1 þl  cs  W b ¼ g sb  p : (22)
Solving Equations (21) and (22), we get:
g sb



Xb ¼ 2
 g bs l  cb  pð1lÞ  1 þl  cb  W s
g bs g sb l cs cb


l  ð1lÞ  cbn 1 þl  cs
þ  Wb ; (23)
g bs g sb l2 cs cb

g bs



Xs ¼  g sb l  cs  pð1lÞ  1 þl  cs  W b
g bs g sb l2 cs cb


l  ð1lÞ  csn 1 þl  cb
þ  Ws : (24)
g bs g sb l2 cs cb
It can be quickly checked that Equations (9) and (10) (equilibrium conditions for the base
model in Section 4) can be derived from Equations (23) and (24) by substituting λ ¼ 1 and
JAMR δs ¼ δr ¼ δ. Further, Equations (16) and (17) (equilibrium conditions for model in Section 5)
16,3 can be derived by substituting λ ¼ 0.5 and δs ¼ δr ¼ 0.
Based on Equations (23) and (24), it can be observed that the equilibrium payoffs
for buyer(supplier) are a function of the probabilities of offer acceptance by itself, and
that by the other player. Further, it is also driven by the outside options: positively by its
own outside and negatively by that of the other player. Further, we can propose the
412 following propositions:
P5. Buyer (supplier)’s split of surplus increases as its impatience, measured in time
discounting rate, increases.
Proof. As the buyer’s discounting rate, δb, increases, only term in Equation (23)
that changes is gsb, which decreases as per Equation (20). Examining first term
in the RHS of Equation (23), (g sb/(g bsgsb−λ2cscb)) can be rewritten as (1/(g bs−(λ2cscb/gsb))).
With an increase in δ b , the second term of denominator increases which
makes denominator decrease due to negative sign and thus resulting in an
overall increase.
Similarly, the second term in the RHS of Equation (23) can be quickly examined to see
that an increase in δb decreases its denominator and thus causing it to increase. Since both
terms increase due to increase in δb, it can be concluded that the buyer’s split of surplus, Xb
increases with its impatience or discounting rate δb: ∎
P6. Buyer (supplier)’s split of surplus decreases as the impatience (measured in
discounting rate) of the other party decreases.
Proof. As the supplier’s time-discounting rate, δs increases, its split of surplus, Xs increases
due to P3. As Xb and Xs are coming out of the same surplus π, therefore, buyer’s split, Xb,
decreases with an increase in δs (and consequently Xs). ∎
The next section will further establish the above-mentioned propositions through
numerical illustration.

6.1 Numerical analysis to study the impact of discounting rates on the split of surplus
We analyze supplier and buyer’s split under increasing supplier’s impatience, i.e.
discounting rate, δs.
Figure 7(a) and (b) illustrates the impact of increasing supplier’s impatience in terms of
inter-temporal discounting rate. The supplier’s split increases with supplier’s impatience
level and buyer’s split decreases with supplier’s impatience level as laid out in P5 and
P6, respectively.

(a) Sipplier’s Split, Xs (b) Buyer’s Split, Xb

0.49 0.51
0.5
0.485
0.49
0.48
0.48
0.475 0.47

0.47 0.46
0.45
0.465
0.44
Figure 7. 0.46
0.43
Impact of supplier’s 0.455 0.42
discounting 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
rate, δs, on split of Supplier’s discounting rate Supplier’s discounting rate
surplus (λ ¼ 0.5)
Notes: (a) Supplier’s split; (b) buyer’s split
7. Conclusion and future works Impact of
Most of the research literature on supply chain contracts has an implicit assumption that bargaining
negotiating firms have the same level of bargaining power during the bargaining process. power
Frequently, supply chain is modeled as a Stackelberg game with one firm designated as the
leader, and the other firm as profit-maximizing under the terms set by the leader. This paper
studies the impact of bargaining power on supply chain surplus allocation. Three different
aspects of bargaining power, namely inter-temporal discounting, outside options and 413
breakdown risk, are modeled together. It formulates a bargaining game between the
supplier and buyer and solves it using Rubenstein’s bargaining game.
This paper establishes that impatience (in terms of counter-offer probability) has a significant
impact on the bargaining position and on the split of the surplus that the firm can get for
themselves. It is common wisdom that a more patient firm can wait longer before accepting an
offer and will thus get a better deal, whereas a more impatient firm accepts the counter-offer more
readily and will get a worse deal. However, this paper establishes that a more impatient firm can
improve its split of surplus, provided the other party recognizes the impatience and factors it in
their decision-making process. Therefore, supply chain entities should work to devise appropriate
messaging to convey their outside options, inter-temporal discounting and breakdown risk.
Solution to the bargaining problem also reveals an important strategic insight. Player’s
impatience is advantageous to it, only when the other player recognizes it. Therefore,
posturing and messaging in advance of the negotiations become very important.
This paper concludes by closed-form deriving equations for split of the surplus for the
buyer and the supplier, respectively, in consideration of selected aspects of bargaining
power. Work done in this paper is very significant in the current era of automation and
artificial intelligence. Equations derived in this paper can be used to design an autonomous
bargaining agent to discover equilibrium profit splits, and offer the same to the other party,
thus reducing the negotiation efforts.
This paper has limited its analysis to three key components of bargaining power. Future
works can study other aspects of bargaining power, namely information asymmetry,
learning curve, inside options, etc. Further, the paper has considered an infinite horizon
model – this assumption can be relaxed in future research.

References
Autushka-Sikorski, A. (2014), New Energy Security Policies in Europe: Making All Quiet on Western
Front, Department of Political Science, Central European University, Budapest.
Baron, O. and Berman, O. (2014), “Nash bargaining with asymmetric bargaining power: bargaining
over profit in a simple supply chain”, unpublished note, available at: www-2.rotman.utoronto.ca/
opher.baron/files/S12_Nash_Bargaining_over_Profit.pdf (accessed August 17, 2018).
Baron, O., Berman, O. and Wu, D. (2016), “Bargaining within the supply chain and its implications in an
industry”, Decision Sciences, Vol. 47 No. 2, pp. 193-218.
Binmore, K., Rubinstein, A. and Wolinsky, A. (1986), “The Nash bargaining solution in economic
modelling”, RAND Journal of Economics, Vol. 17 No. 2, pp. 176-188.
Binmore, K., Shaked, A. and Sutton, J. (1989), “An outside option experiment”, The Quarterly Journal of
Economics, Vol. 104 No. 4, pp. 753-770.
Binmore, K.G. (1987), “Nash bargaining theory i, ii, iii”, The Economics of Bargaining, Vol. 2 No. 3,
pp. 27-46, 61-76, 239-256.
Blokhuis, E.G.J., van Leengoed, T., Schaefer, W.F., de Vries, B. and Snijders, C.C.P. (2008), “Measuring
power in planning negotiation processes”, in Naaranoja, M., den Otter, A.F. and Prins, M. (Eds),
Proceedings CIB Joint Conference W096 –W102, Improving Performance of Construction
Organizations, Conseil International du Bâtiment, Helsinki, pp. 405-416.
JAMR Cachon, G.P. (2003), “Supply chain coordination with contracts”, in De Kok, A.G. and Graves, S.C. (Eds),
16,3 Handbooks in Operations Research and Management Science, Vol. 11, Supply Chain
Management: Design, Coordination And Operation, Elsevier, Amsterdam, pp. 227-339.
Cox, A. (1999), “Power, value and supply chain management”, Supply Chain Management:
An International Journal, Vol. 4 No. 4, pp. 167-175.
Cunyat, A. (1998), “Strategic negotiations and outside options”, Technical Report Department of
414 Economic Analysis, University of Valencia, Valencia.
Ertogral, K. and Wu, S.D. (2001), “A bargaining game for supply chain contracting”, working paper,
Department of Industrial and Systems Engineering, Lehigh University, Bethlehem, PA.
Esmaeili, M., Mir-Bahador Aryanezhad, P. and Zeephongsekul. (2009), “A game theory approach in
seller-buyer supply chain”, European Journal of Operational Research, Vol. 195 No. 2,
pp. 442-448.
Feng, Q. and Lu, L.X. (2013), “Supply chain contracting under competition: bilateral bargaining vs
stackelberg”, Production & Operations Management, Vol. 22 No. 3, pp. 661-675.
Fletcher, L.B. (1961), “Concept and importance of bargaining power”, Bargaining power in
agriculture, CARD reports, Center for Agricultural and Economic Adjustment, Iowa State
University, Ames, IA.
Galinsky, A.D. and Magee, J. C. (2006), “Power plays”, Negotiation Briefings newsletter, Harvard Law School,
Cambridge, MA.
Hermel, D.Z. (2013), “Three essays in operations management”, University of British Columbia, Vancouver,
available at: https://open.library.ubc.ca/cIRcle/collections/ubctheses/24/items/1.0102461 (accessed
July 16, 2018).
Huang, Y., George, Q.H. and Stephen, T.N. (2011), “Coordinating pricing and inventory decisions in a
multi-level supply chain: a game-theoretic approach”, Transportation Research Part E: Logistics
and Transportation Review, Vol. 47 No. 2, pp. 115-129.
Kalai, E. and Smorodinsky, M. (1975), “Other solutions to Nash’s bargaining problem”, Econometrica,
Vol. 43 No. 3, pp. 513-518.
Kersten, G., Michalowski, W., Szpakowicz, S. and Koperczak, Z. (1991), “Restructurable representations
of negotiation”, Management Science, Vol. 37 No. 10, pp. 1269-1290.
Kim, B. and Heungshik, O. (2005), “The impact of decision-making sharing between supplier and
manufacturer on their collaboration performance”, Supply Chain Management: An International
Journal, Vol. 10 No. 3, pp. 223-236.
Kim, B., Park, K. and Kim, T. (1999), “The perception gap among buyer and suppliers in the
semiconductor industry”, Supply Chain Management: An International Journal, Vol. 4 No. 5,
pp. 231-241.
Kreutter, P., Bäumer, U. and Messner, W. (2012), “Consolidation patterns in the IT outsourcing market:
past, present, and future”, Globalization of Professional Services, Springer, Verlag, Berlin and
Heidelberg, pp. 14-21.
Leng, M. and Zhu, A. (2009), “Side-payment contracts in two-person nonzero-sum supply chain games:
review, discussion and applications”, European Journal of Operational Research, Vol. 196 No. 2,
pp. 600-618.
McLeish, K.N. and Oxoby, R.J. (2007), “Measuring impatience: elicited discount rates and
the Barratt impulsiveness scale”, Personality and Individual Differences, Vol. 43 No. 3,
pp. 553-565.
Maloni, M. and Benton, W.C. (2000), “Power influence in the supply chain”, Journal of Business
Logistics, Vol. 21 No. 1, pp. 49-73.
Marek, M.M. and Konecka, S. (2009), “Strategies, bargaining power and leaders in the supply chain”,
LogForum, Vol. 5 No. 9, pp. 1-8.
Monroy, L., Rubiales, V. and Mármol, A.M. (2017), “The conservative Kalai–Smorodinsky Impact of
solution for multiple scenario bargaining”, Annals of Operations Research, Vol. 251 No. 1, bargaining
pp. 285-299.
power
Muthoo, A. (2000), “A non-technical introduction to bargaining theory”, World Economics, Vol. 1 No. 2,
pp. 145-166.
Muthoo, A. (2001), The Economics of Bargaining – University of Essex, Department of Economics, Colchester.
Nair, A., Narasimhan, R. and Bendoly, E. (2011), “Coopetitive buyer-supplier relationship: an 415
investigation of bargaining power, relational context, and investment strategies”, Decision
Sciences, Vol. 42 No. 1, pp. 93-127.
Nash, J.F. (1950), “The bargaining problem”, Econometrica, Vol. 18 No. 2, pp. 155-162.
Osborne, M.J. and Rubinstein, A. (1990), Bargaining and Markets, Academic Press, San Diego, CA.
Pan, A. and Choi, T. (2016), “An agent-based negotiation model on price and delivery date in a fashion
supply chain”, Annals of Operations Research, Vol. 242 No. 2, pp. 529-557.
Pfeffer, J. (1981), Power in Organizations, Pitman, Marshfield, MA.
Rambaud, C.S. and Torrecillas, M. (2016), “Measuring impatience in intertemporal choice”, PLoS One,
Vol. 11 No. 2, pp. 1-17.
Ramsay, J. (2004), “Serendipity and the realpolitik of negotiations in supply chains”, Supply Chain
Management: An International Journal, Vol. 9 No. 3, pp. 219-229.
Rubinstein, A. (1982), “Perfect equilibrium in a bargaining model”, Econometrica, Vol. 50 No. 1, pp. 97-109.
Schmidt, R. (2013), “What you should know about the discount rate”, available at: www.
propertymetrics.com/blog/2013/09/27/npv-discount-rate/ (accessed May 1, 2017).
Stahl, I. (1972), Bargaining Theory, Stockholm Research Institute, Stockholm School of Economics,
Stockholm.
Weber, M. (1947), The Theory of Social and Economic Organization, Free Press, New York, NY.
Wolff, F. (2016), “Bargaining powers of buyers and sellers on the online diamond market: a double
perspective non-parametric analysis”, Annals of Operations Research, Vol. 244 No. 2,
pp. 697-718.
Wu, S.D. (2004), “Supply chain intermediation: a bargaining theoretic framework”, in
David Simchi-Levi, S., David, W. and Shen, Z.M. (Eds), Handbook of Quantitative Supply
Chain Analysis: Modeling in the E-Business Era, Springer, Boston, MA, pp. 67-115.
Zwick, R., Rapoport, A. and Howard, J.C. (1992), “Two-person sequential bargaining behavior with
exogenous breakdown”, Theory and Decision, Vol. 32 No. 3, pp. 241-268.

Further reading
Anupindi, R. and Bassok, Y. (1999), “Supply contracts with quantity commitments and stochastic
demand”, in Tayur, S., Ganeshan, R. and Magazine, M. (Eds), Quantitative Models for Supply
Chain Management, Kluwer Academic Publishers, London., pp. 197-234.

About the authors

Dr Sanjay Prasad is employed with IBM India as Chief Data Scientist. Sanjay has rich industry
experience and has worked for large organizations like Coal India Ltd, Steel Authority of India Ltd, i2
Technologies, etc. He is actively involved in the academic circles and has delivered lectures in institutes
like IISc Bangalore and RIMS Bangalore. He also received Emerald Literati Award for Outstanding
Reviewer in May 2013. He has developed a strong interest and expertise in supply chain management,
services engineering, data mining, machine learning, game-theoretic modeling and optimization
modeling. Dr Sanjay Prasad is the corresponding author and can be contacted at: skprasad@gmail.com
Professor Ravi Shankar is “Amar S. Gupta Chair Professor of Decision Science” and Group Chair of
Operations and Supply Chain Management in the Department of Management Studies (DMS), Indian
Institute of Technology (IIT) Delhi, India. He is also Program-Coordinator of MBA (Telecom Technology
JAMR & Management) at Bharti School of Telecom Technology & Management, IIT Delhi. His areas of interest
16,3 include decision science, business analytics and Big Data, operations and supply chain management,
project management, total quality management & six sigma, sustainable freight transportation, strategic
technology management, telecom system planning & design, knowledge management, etc.
Sreejit Roy is Vice President in IBM India. In this role, he is responsible to manage delivery across
all industry verticals at IBM Client Innovation Centre, India. He has delivery accountability for both
Global and India domestic clients, and across technology domains, i.e. ERP, custom applications, cloud,
416 digital, mobile, cognitive and analytics. Sreejit received a PGDM from Indian Institute of Management
Calcutta and BE (Mechanical) from the University of Jodhpur, Rajasthan.

For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: permissions@emeraldinsight.com