UCL School of Management is delighted to welcome Leon Yang Zhu, USC, to host a seminar discussing ‘Strategic Benefit of Request for Quotation’.
Inspired by prescription drug affordability practices, we study how a buyer may achieve cost reduction by combining a procurement process with (the threat of) exclusion clauses, the latter of which has been commonly adopted in contracting but rarely executed. We analyze the equilibrium outcomes when the buyer simultaneously or sequentially negotiates with imperfectly substitutable suppliers under a dual-sourcing setting. We show that quantity-dependent pricing contracts coordinate the supply chain, and introducing exclusion clauses leads to various equilibrium profit allocations. Surprisingly, the buyer can benefit from a request for quotation (RFQ) stage that precedes the negotiation stage even under a full information setting. Specifically, by endogenizing the sequence of negotiations via the quotations submitted in the RFQ stage, the buyer’s equilibrium profit with an RFQ is (weakly) higher than the profit without an RFQ. The insights extend to an uncertain demand setting, in which the buyer first negotiates contracts with suppliers and then decides order quantities after demand realization.