We study the problem of a price-setting retailer who sources from two strategic suppliers subject to independent or correlated disruptions and sets the retail price upon delivery. We model this problem as a Stackelberg-Nash game with the suppliers as leaders and the retailer as a follower, and obtain explicitly the equilibrium of the game. We show that the total order quantity in equilibrium does not exceed the abundant supply, defined as a threshold above which extra units will be salvaged. We study cases in which the retailer orders from one perfectly reliable supplier and one unreliable supplier, and from two correlated unreliable suppliers. In the latter case, the suppliers chosen are based on combining consideration of wholesale prices and reliabilities. In the responsive pricing scheme, for one reliable and one unreliable supplier, the retailer prefers the unreliable supplier having a higher reliability, because higher reliability will intensify the competition between suppliers and leave the retailer a higher equilibrium profit. For two unreliable suppliers, it is consistent with the literature that the equilibrium retailer prohellipfit increases in the supplier disruptions correlation, but the equilibrium suppliers#39 rsquoprofits can increase in that correlation. We also show that the random disruption assumption is not a particular case of the random capacity assumption. We also consider the committed pricing scheme leading to a lower equilibrium retailer profit. With one reliable and one unreliable supplier, single sourcing is always optimal for the retailer. With two unreliable suppliers, single sourcing is optimal sometimes and requires Bertrand competition between the two suppliers.

Tao Li joined the Operations Management Information Systems department in the Leavey School of Business at Santa Clara University in Fall 2012 as an assistant professor.

Professor Lirsquos research interests include supply chain management with a special emphasis on sourcing strategy with unreliable suppliers, supply chain coordination, and the operations-marketing interface. His scholarship has appeared in leading academic journals such as Production and Operations Management, European Journal of Operational Research. His scholarship has been supported by the Santa Clara University Research Grant, the Leavey Research Grant, and the National Natural Science Foundation of China. He is the recipient of the Leavey School of Business Extraordinary Research Award.