Incentives and commonality in a decentralized multiproduct assembly system

Fernando Bernstein, Gregory A. Decroix, Yulan Wang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

37 Citations (Scopus)


In this paper, we explore the impact of decentralized decision making on the behavior of multiproduct assembly systems. Specifically, we consider a system where three components (two product specific and one common) are used to produce two end products to satisfy stochastic customer demands. We study the system under both centralized and decentralized decision making. In the decentralized system, we prove that for any set of wholesale prices, there exists a unique Paretooptimal equilibrium in the suppliers' capacity game. We show that the assembler's optimal wholesale prices lie in one of two regions-one leads to capacity imbalance and one does not. We use these results to derive insights regarding the inefficiencies that decentralization can cause in such systems. In particular, several of our findings indicate that outsourcing the management of component supplies may inhibit the use of operational hedging approaches for managing uncertainty.
Original languageEnglish
Pages (from-to)630-646
Number of pages17
JournalOperations Research
Issue number4
Publication statusPublished - 1 Jul 2007
Externally publishedYes


  • Games group decisions: noncooperative
  • Inventory, production: multi-item, echelon, stage
  • Uncertainty: stochastic

ASJC Scopus subject areas

  • Computer Science Applications
  • Management Science and Operations Research


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