Fernanda Bravo

 

Faculty Speaker Fernanda Bravo [MIT Sloan School of Managementl]
Title A Risk-Sharing Pricing Contract in B2B ServiceSupply Chains: An Application to Healthcare
Date & Time Thursday, February 12, 2015 at 10:30am
Place UCLA Anderson School of Management 
Room D-307

 

Abstract
Motivated by real applications from the healthcare industry we consider a setting where one firm provides a service to a second firm that is facing stochastic demand for the service. The changes in the reimbursement system has created new opportunities for B2B interactions between healthcare systems and providers. Typical contracts in the healthcare industry are based on a transaction fee per unit of service that is negotiated between the two parties. Unlike traditional product-based 2-echelon supply chains, the two firms have two opposing risks with respect to the demand volume. We leverage this insight to design a conceptually simple dual-price volume based contract, and analyze it within a game theoretic setting. Although the resulting problem is non-convex, we are able to characterize the unique equilibrium contract in closed form for general utility functions that capture firms' different risk behaviors, and general demand distributions. Moreover, at equilibrium the new contract has two desirable properties: (1) it allows for better risk reduction (measured by CVaR) to the two firms, and (2) it reduces the uncertainty in the overall payments.

Fernanda Bravo