sse 1. Consider a simple supply chain consisting of a wholesaler (W) and a retai
ID: 329952 • Letter: S
Question
sse 1. Consider a simple supply chain consisting of a wholesaler (W) and a retailer (R). Each of them has two alternatives (1 and 2) and the payoffs (in millions of dollars) resulting from all possible combinations of alternatives are shown in the following table, where the first number in the parentheses represents the payoff to W and the second number represents the payoff to R: 1 -80, 30) (45, 35) 2 (-50,-20) 50,-70) (1) If W and R are selfish and unwilling to cooperate with each other: (a) Which alternative should each of them select to arrive at an equilibrium? (b) What is the resulting payoff for each of them? (c) What is the total payoff in the entire supply chain? (2) If W and R are willing to coopcrate by reaching an agreement to evenly split the total payoff under each of the four possible combination of payoffs: (a) What is the new payoff table? (b) Which alternative should cach of them select to arrive at an equilibrium? (c) What is the resulting payoff for cach of them? d) What is the total payoff in the entire supply chain? (3) Based on your findings in Parts (1) and (2) above, will W, R, and the entire supply chain benefit from the coordination between the two players? Why?Explanation / Answer
1. a.) W should choose 1 and R should choose 2
b.) resulting pay off : (45,35)
c.) total pay off = 45+35 = 70
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