Optimal Supply Chain Structural Choice under Horizontal Chain-to-Chain Competition

Yucai Wu, Jiguang Wang, Changhong Li and Kan Su
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Yucai Wu: School of Economics and Management, Shanxi University, Taiyuan 030006, China
Jiguang Wang: School of Economics and Management, Shanxi University, Taiyuan 030006, China
Changhong Li: School of Economics and Management, Shanxi University, Taiyuan 030006, China
Kan Su: School of Economics and Management, Shanxi University, Taiyuan 030006, China

Sustainability, 2018, vol. 10, issue 5, 1-16

Abstract: This paper investigates the horizontal Nash game and structure selection strategy in two competing dominant enterprises. Each firm decides whether to outsource the retail or manufacture to the exclusive third-party enterprise and thus forms a decentralized supply chain structure. On the premise that third-party enterprises have no advantage on sales and manufacture cost, the revenue-sharing contract is introduced between the manufacturer and retailer, and the influence of decentralized structure on the game equilibrium structure and supply chain profit is analyzed based on Hotelling model. The results show that, when compared with centralized structure, decentralized supply chain has the structural advantage to improving not only its supply chain profits but also the competing chain. This interesting insight is counterintuitive to the common “double marginalization” effect and explains the outsourcing strategy from the perspective of supply chain competition. In addition, we find the dominant strategy in the evolutionary game is that both two chains are decentralized or integrated.

Keywords: supply chain; competition; structure; decentralization; outsourcing (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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