the perils of group purchasing in a competing supply chain

Group purchasing organizations (gpos) are well-known intermediary firms that play an important role in some supply chains. an important question that arises regarding the gpos, is whether a gpo that benefits from group buying discounts, always benefit the oems in the presence of market competition. in other words, does a gpo always lead to a win-win outcome for oems and the gpo? to answer this question, a bargaining framework has been used to investigate competing oems’ procurement’s strategies. the entrance of a gpo in a two tier supply chain that consists of two competing oems with a common supplier that has a quantity discount menu is analyzed. the result shows that low purchasing cost gpo may harm oems in a cost-benefit perspective. this unintuitive result can be explained by different impacts that a gpo has in purchasing process. although, it can enlarge the size of trade surplus; but, it has an important influence on the size of the slice of the pie (profit sharing). moreover, an oem’s procurement strategy in equilibrium not just only depends on his bargaining power; but also depends on his competitor oem. interestingly, a strong oem may not prefer procuring through gpo, as well as a weak oem does.