Supply Chain Coordination with Guaranteed Auction Contracts

This paper investigates the problem of contract coordination in a two-tier multi-unit auction supply chain consisting of a seller and an auction house. We theoretically show that the conventional commission-based mechanism distorts the transmission of demand information from the demand side to the supply side, thereby preventing effective supply chain coordination. In contrast, guaranteed auction contracts can achieve coordination under both cooperative and non-cooperative game frameworks. Under the cooperative game setting, profits are allocated according to a Nash bargaining solution, in which each party receives its disagreement payoff and a bargaining-power-weighted share of the surplus, with risks and returns being allocated symmetrically. Under the non-cooperative game setting, the supply chain leader can appropriate a larger share of the total profit while bearing relatively lower risk. These results indicate that, as the supply chain leader, the auction house can select different cooperation modes under guaranteed auction contracts according to its bargaining position, but profit allocation should be benchmarked against the cooperative game outcome in order to enhance the long-term competitiveness and stability of the supply chain.