Mitigating Supply Disruption Risks: Impact of Product Upgrading Strategy
Lu Yang (),
Jun Zhang () and
Xiutian Shi
Additional contact information
Lu Yang: School of Economics and Management, Nanjing University of Science and Technology, Nanjing 210094, P. R. China
Jun Zhang: School of Economics and Management, Nanjing University of Science and Technology, Nanjing 210094, P. R. China
Xiutian Shi: School of Economics and Management, Nanjing University of Science and Technology, Nanjing 210094, P. R. China
Asia-Pacific Journal of Operational Research (APJOR), 2025, vol. 42, issue 01, 1-45
Abstract:
Supply disruption is one of the crucial risks faced by supply chains in the changing external environment. To mitigate supply disruption risk and enhance resilience, product upgrading with Research and Development (R&D) investment is widely adopted by firms. In this paper, we establish a game-theoretic model to study the operation decisions and product upgrading strategies for a supply chain. Specifically, Firm 1 faces supply disruption risks when selling a normal product with a key component sourced from an unreliable supplier. To achieve supply resilience, the firm has an incentive to replace the unreliable supplier with product upgrading supported by R&D. It has an option to make high or low investments in R&D projects, indicating a high or low success rate. Our findings reveal that Firm 1 prefers to make investments in R&D for the upgraded product at a high investment level when the additional production cost of the upgraded product is relatively low or both the upgrading cost and supply disruption risk are relatively high. Extending our model to a duopoly scenario, we investigate the impact of competition on the product upgrading strategy selection. It is shown that a firm with a sufficiently large market share can drive its competitor out of the market by making R&D investments. Compared to the monopoly scenario, Firm 1 has a stronger incentive to upgrade the product under the duopoly scenario if its market share is relatively low. Finally, we identify the conditions where consumers get benefits from product upgrading. Our findings shed light on the importance of product upgrading strategy in a volatile business environment and provide insights into how firms can effectively mitigate supply disruption risk through R&D investments.
Keywords: Product upgrading strategy; supply disruption risk; R&D investment; competition (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:
Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0217595924400219
Access to full text is restricted to subscribers
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:wsi:apjorx:v:42:y:2025:i:01:n:s0217595924400219
Ordering information: This journal article can be ordered from
DOI: 10.1142/S0217595924400219
Access Statistics for this article
Asia-Pacific Journal of Operational Research (APJOR) is currently edited by Gongyun Zhao
More articles in Asia-Pacific Journal of Operational Research (APJOR) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().