Disruption and Strategic Outsourcing to the Competitor in the Common Market

Zhaoqiong Qin
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Zhaoqiong Qin: University of Central Oklahoma, Edmond, USA

International Journal of Operations Research and Information Systems (IJORIS), 2019, vol. 10, issue 1, 1-20

Abstract: There are circumstances that one firm will outsource (purchase) products to its competitor in the common market when experiencing an unexpected supply disruption. Such strategies to hedge against the unexpected supply disruption commonly suffers from the higher wholesale price charged by its competitor although it helps maintain its presence on the market. Its competitor also is concerned about encroachment to sell the products to the firm as a rival in the common market. Mathematical models are formulated to maximize each party's profit in both cases of outsourcing and not outsourcing under decentralization and centralization. The results show that both parties benefit from the strategy of outsourcing at the time of disruption. More interestingly, the results also show that the competitor's centralized decision-making is preferred.

Date: 2019
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