Biform games in supply chains

Supply chain is defined as a system of suppliers, manufacturers, distributors, retailers and customers where material, financial and information flows connect participants in both directions. The ongoing actions in the supply chain are a mix of cooperative and non-cooperative behavior of the participants. The paper proposes to use biform games for the analysis of supply chains. A biform game is a combination of non-cooperative and cooperative games, introduced by Brandenburger and Stuart (2007). It is a two-stage game: in the first stage, players choose their strategies in a non-cooperative way, thus forming the second stage of the game, in which the players cooperate. The biform game approach can be used for modeling general buyer-supplier relationships in supply chains. First, suppliers make initial proposals and take decisions. This stage is analyzed using a non-cooperative game theory approach. Then, suppliers negotiate with buyers. In this stage, a cooperative game theory is applied to characterize the outcome of negotiation among the players over how to distribute the total surplus. Each supplier's share of the total surplus is the product of its added value and its relative negotiation power. A specific model of this type for analyzing supply chains is presented.