Game theory and purchasing management: An empirical study of auctioning in the automotive sector

Abstract

The purchasing function is assuming an increasingly relevant role within companies in the last decades, taking over the main responsibility for the costs of goods purchased as well as for supplier management. Its relevancy is due to the fact that purchasing can contribute to develop competitive advantages by aligning its strategy to the business strategy. Purchasing strategy is usually deployed per (purchasing) category and operationally executed in the so called tactical purchasing process. One key step is the negotiation/bidding where there is a lack of empirical research regarding the application of game theory. This paper contributes by discussing how game theory can be systematically utilised for designing negotiations (i.e. games) and getting more efficient results -by presenting an empirical study on automotive sector company, specifically on a bidding process for constructing a new production facility in Mexico.