Manufacturer’s vertical integration strategies in a three-tier supply chain

Wei Li and Jing Chen

Transportation Research Part E: Logistics and Transportation Review, 2020, vol. 135, issue C

Abstract: We develop game-theoretic models to examine the manufacturer’s vertical integration strategies in a three-tier supply chain with two suppliers, one manufacturer, and two retailers. The supply chain sells two quality-differentiated products. We find that when quality is exogenous, regardless of the existing supply chain structure, the manufacturer’s choice of forward or backward integration strategy depends on the relative efficiencies of two products. When quality is endogenous, however, the existing supply chain structure does affect the manufacturer’s integration strategy decision. Although backward integration hurts the unintegrated supplier, forward integration can lead to a win-win outcome for the manufacturer and unintegrated retailer.

Keywords: Vertical integration; Three-tier supply chain; Endogenous quality positioning; Vertical quality differentiation (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (10)

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DOI: 10.1016/j.tre.2020.101884

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