Unfair allocation of gains under the equal price allocation method in Purchasing groups

Fredo Schotanus, Jan Telgen, L. de Boer

Research output: Contribution to journalArticleAcademicpeer-review

23 Citations (Scopus)
199 Downloads (Pure)

Abstract

Certain purchasing groups do not flourish. A supposed reason for this is a creeping dissatisfaction among various members of a group with the allocation of the cooperative gains. In this paper, we analyze unfairness resulting from using the commonly used Equal Price (EP) method for allocating gains under the assumption of continuous quantity discounts. We demonstrate that this unfairness is caused by neglecting a particular component of the added value of individual group members. Next, we develop two fairness ratios and tie these to fairness properties from cooperative game theory. The ratios show among other things that being too-big a player in a purchasing group can lead to decreasing gains. They can be used to assess if EP is an unfair method in specific situations. Finally, we discuss measures a purchasing group could consider in order to attenuate perceived unfairness. Thereby, the group may improve its stability and prosperity.
Original languageUndefined
Pages (from-to)162-176
Number of pages6
JournalEuropean journal of operational research
Volume187
Issue number1
DOIs
Publication statusPublished - 2008

Keywords

  • Game Theory
  • Group Purchasing
  • Group decisions and negotiations
  • Allocation
  • METIS-248466
  • IR-57986
  • Purchasing

Cite this