We investigate a supply chain consisting of two suppliers and a customer. The customer faces a new product procurement deal and seeks ways to allocate the new product demand volume between suppliers so that he maximizes his profits. The suppliers compete for this new product offer by deciding on their base stock inventory levels. In addition, each of the three players decides on accepting or refusing to participate in this game according to the profitability of the deal. We examine the decentralized system where each player optimizes his own profits regardless of the whole system’s benefit. We show the existence of several pure strategies of Nash equilibria for this game and that the decentralization of decisions can lead to significant supply chain inefficiency. For instance, we show that the new product deal can be lost due to the decentralization of decisions. We derive a transfer payment contract which aims to avoid this inefficiency by allowing the decentralized system to behave similar to the centralized one. We also provide conditions under which collaboration is beneficial for all of the players. Introduction