Supply chain management in the presence of secondary market

Abstract

This paper studies the impacts of online secondary markets on a supply chain. Retailers who recognize that there is a secondary market to dispose of their excess inventory, might make higher purchase quantities in the beginning of a product life cycle. On the other hand, given that there is a secondary market that one can tap into for future needs, a retailer may reduce its initial purchase quantities. We endogenously derive the optimal decisions for the retailers, and explore the impacts of the secondary market on the performance of the supply chain as a whole. Next, we explore the impact of a manufacturer’s participation in the secondary markets, together with the retailers, for a special kind of secondary market known as diversion. In addition, we study the role of the secondary market as a mechanism to capture demand information through the realized price. Lastly, we discuss managerial implications of secondary markets and offer further research directions.