Competing buyers’ investment and ordering strategies under supply disruption

Mengchu Wu, Jing Chen, Weili Xue and Xi Liu

Transportation Research Part E: Logistics and Transportation Review, 2024, vol. 191, issue C

Abstract: Supply chain disruptions can be costly and disruptive, and reducing supplier uncertainty through investments can be an effective strategy for mitigating these risks. In this study, we explore ordering and investment strategies in a downstream competitive environment, considering supply uncertainty. We consider two buyers ordering from a single supplier and competing in a Cournot market. Buyers must balance investment benefits against costs when making investment decisions. We find that without downstream competition, a relatively low investment proportion can yield a “win-win” outcome. Under downstream competition, an increased number of investors does not necessarily lead to higher supplier reliability. When both buyers invest at a high ratio, the significant decline in order quantities may results in lower supplier reliability. When there is only one investing buyer in the market, even though the competitor may benefit from spillover reliability enhancement — free-riding, the buyer may also be willing to provide an investment subsidy to improve the supplier’s reliability. When both buyers invest at a moderate ratio, downstream competition may benefit all supply chain members. Moreover, increasing wholesale price differentiation and endogenous investment ratios can effectively reduce free-riding behavior of the non-investing buyer. These findings have practical implications for supply chain managers aiming to reduce supply risks and allocate investment resources efficiently.

Keywords: Supply disruption; Downstream competition; Investment strategy; Free ride (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1016/j.tre.2024.103723

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