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Department of Information and Systems Management School of Business and Management Hong Kong University of Science and Technology Seminar Announcement S Sttrraatteeggiicc ccuussttoom meerr bbeehhaavviioorr,, ccoom mm miittm meenntt,, aanndd ssuuppppllyy cchhaaiinn ppeerrffoorrm maannccee by Professor Fuqiang Zhang The Paul Merage School of Business University of California, Irvine 20 Oct 2006 (Friday) 11:00 am – 12:00 noon Room 3416 (L17/18) All interested are welcome Abstract This paper studies the impact of strategic customer behavior on supply chain performance. We start with a newsvendor seller facing forward-looking customers. The seller initially charges a regular price but may salvage the leftover inventory at a lower salvage price after random demand is realized. Customers anticipate future sales and choose purchase timing to maximize their expected surplus. We characterize the rational expectations (RE) equilibrium, where we find that the seller's stocking level is lower than that in the classic model without strategic customers. We show that the seller's profit can be improved by promising that: either quantities available will be limited (quantity commitment) or prices will be kept high (price commitment). In most cases, both forms of commitment are not credible in a centralized supply chain with a single seller. However, decentralized supply chains can use contractual arrangements as indirect commitment devices to attain the desired outcomes with commitment. While decentralization has generally been associated with coordination problems, we present the contrasting view that disparate interests within a supply chain can actually improve overall supply chain performance. In particular, with strategic customer behavior, we find that: (i) a decentralized supply chain with a wholesale price contract may perform strictly better than a centralized supply chain; (ii) contracts widely studied in the supply chain coordination literature (e.g., markdown money, sales rebates, and buyback contracts) can serve as a commitment device as well as an incentive-coordinating device; and (iii) strategic customer behavior sometimes imposes constraints on how profits must be allocated between the supply chain members under the above contracts. Biography Professor Zhang received his Ph.D. from the Wharton School, University of Pennsylvania. He joined the Paul Merage School of Business at University of California, Irvine in July, 2004. Professor Zhang's main research interests are in supply chain management and incentives in operations management. In particular, he is interested in the application of economics theories to Operations Management, including game theory, the theory of auctions and the theory of incentives. His work has been published in Management Science and Manufacturing & Service Operations Management. His recent research covers supply chain contracting and customer behavior in operations management.