| dc.description.abstract | Complex economic activity often involves inter-relationships at several levels of production, often referred to as supply chains or procurement networks. In this thesis we address the problem of forming procurement networks for items with value adding stages that are linearly arranged.
Formation of such procurement networks involves a bottom-up assembly of complex production, assembly, and exchange relationships through supplier selection and contracting decisions. Recent research in supply chain management has emphasized that such decisions need to take into account the fact that suppliers and buyers are intelligent and rational agents who act strategically. Game theory has therefore emerged as a crucial tool for supply chain researchers to model, analyze, and design supply chains that are both efficient and stable.
In this thesis, we explore cooperative game theory as a framework to model and analyze the formation of efficient and stable procurement networks. We view the problem of Procurement Network Formation (PNF) for multiple units of a single item as a cooperative game where agents cooperate to form a surplus maximizing procurement network and then share the surplus in a
fair manner. We address this problem in three different informational settings: (a) Complete information environments, (b) Incomplete but non-exclusive information environments and (c) Incomplete information environments.
In the complete information case, we first investigate the use of the core as a solution concept. We show the structural conditions under which the core is non-empty. We then provide an extensive form game that implements the core in sub-game perfect Nash equilibrium whenever the core is non-empty. Secondly, we examine the implications of using the Shapley value as
a solution concept for the game when the buyer is also included as a game theoretic agent. Analogous to the mechanism that implements the core, we adapt and construct an extensive form game to implement the Shapley value of the game.
In the incomplete but non-exclusive information case, we focus on the incentive compatible coarse core as an appropriate solution concept and show its non-emptiness for the PNF game. In the incomplete information case, we focus on the incentive compatible fine core as an appropriate
solution concept and show its non-emptiness for the PNF game.
We believe the thesis establishes cooperative game theory as an extremely effective tool to model and solve the procurement network formation problem.
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