Highlights We consider a three-tier supply chain selling two quality-differentiated products; The supply chain consists of a manufacturer, two retailers, and two suppliers. The manufacturer’s (either forward or backward) integration strategy is examined; Endogenous quality positioning changes the manufacturer’s integration strategy; We discuss effects of up(down)stream supply chain structure on integration strategy.
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.
Manufacturer’s vertical integration strategies in a three-tier supply chain
2020-02-12
Article (Journal)
Electronic Resource
English
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