Negotiating Government-to-Government Food Importing Contracts: A Nash Bargaining Framework

Problem definition: Inspired by India’s challenges in importing pulses, we study the negotiation of government-to-government food importing contracts, with a focus on ad hoc and forward negotiations with multiple suppliers (henceforth referred to as multiple-sourcing negotiations). Academic/practical relevance: We are the first to comprehensively study ad hoc and forward multiple-sourcing negotiations for food importing. Such problems are widespread, especially in developing nations, and thus the research can be relevant to the wellbeing of large underprivileged populations. Methodology: We develop an analytical negotiation model in the Nash bargaining framework and adopt the Nash-in-Nash framework to analyze multiple-sourcing negotiations. Results: We find that while forward negotiations are not necessarily better than ad hoc negotiations for the buyer, it would be true with sufficiently many suppliers. When facing a supplier pool, we show that it may be optimal to mix forward and ad hoc suppliers. In general, fewer suppliers should be assigned as ad hoc as the pool size increases. We also find that adding a hybrid supplier (engaged in a forward negotiation with an ad hoc negotiation as the fallback option) may be better or worse than adding a forward supplier in the presence of other suppliers. Managerial implications: Our findings inform how a food importer should strategically utilize ad hoc and forward negotiations with its suppliers to improve the outcome. The work may help countries’ food importing policymaking and strategies and may improve the wellbeing of large underprivileged populations.