Multichannel Distribution Strategy: Selling to a Competing Buyer with Limited Supplier Capacity

T his study examines the strategic choices of two rival manufacturers between competition and coopetition. A complex relationship exists between these two firms, who manufacture substitutive products. In addition, each of these firms has an option to purchase (or sell) a key component from (or to) the other. We develop a benchmark competition model and two coopetition models in which the manufacturers compete for end-customer demand while simultaneously collaborating on component production through wholesaling (wholesaling coopetition) or licensing (license coopetition). By comparing the equilibria of the competition model and two coopetition models, we find that the optimal strategy for coopetition is determined by not only the degree of product substitution but also the inter-firm power relationship in the negotiation of a cooperation contract (i.e., wholesale price and license fees) and the difference in production efficiency between the two manufacturers. Our research comprehensively examines how the external, relationship-specific, and internal factors affect firms' optimal strategy selection and suggests a broad set of decision outcomes. Our study provides important managerial implications that can be utilized as strategic guidance for firms to pursue coopetition in various business environments.

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“…, Yang et al. ). Each manufacturer's retail price decreases its production quantity and the competitor's production quantity.…”

Section: The Models and Equilibrium Analysismentioning

confidence: 99%

“…, Yang et al. ). Based on the findings, we propose a decision framework as illustrated in Table to provide some strategic guidance for firms’ optimal decisions concerning coopetition strategies.…”

Section: Managerial Relevance and Insightsmentioning

confidence: 99%

Production Coopetition Strategies for Competing Manufacturers that Produce Partially Substitutable Products

Chen

Wang²,

Xia

2019

Production and Operations Management

107

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“…The closest paper to our work is Yang, Hu, Gurnani, and Guan () which considers the setting with a buyer and a supplier with finite capacity, where the supplier first decides the maximum capacity allocated to the buyer. Then, the buyer decides the amount of capacity to be procured from the supplier.…”

Section: Literature Reviewmentioning

confidence: 99%

Excess procurement strategies by a dominant buyer under constrained supply

Jain

Hazra

Swaminathan

2019

Naval Research Logistics

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Supply chains are often characterized by the presence of a dominant buyer purchasing from a supplier with limited capacity. We study such a situation where a single supplier sells capacity to an established and more powerful buyer and also to a relatively less powerful buyer. The more powerful buyer enjoys the first right to book her capacity requirements at supplier's end, and then the common supplier fulfills the requirement of the less powerful buyer. We find that when the supplier's capacity is either too low (below the lower threshold) or too high (above the higher threshold), there is no excess procurement as compared to the case when supplier has infinite capacity. When the supplier's capacity is between these two thresholds, the more powerful buyer purchases an excess amount in comparison to the infinite capacity case. KEYWORDScapacity competition, dual customers, sequential procurement, supply chain management 1 272

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“…Yang, Hu, Gurnani, and Guan () consider the distribution strategy of a supplier of a proprietary component brand with limited capacity when this supplier and its OBM sell two perfectly substitutable products to customers. These authors find that the OBM may order excess inventory, and all firms and their customers can be better off from a system with limited capacity.…”

Section: Literature Reviewmentioning

confidence: 99%

Optimal Outsourcing Strategies When Capacity Is Limited

2017

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Outsourcing the production of selected components to competitors is becoming more common among original brand manufacturers (OBMs); however, OBMs’ increased attention to outsourcing and the growing demand in many markets can result in capacity allocation conflicts for the contract manufacturers. In this study, we consider a scenario in which the OBM decides whether to outsource to a third‐party supplier or to a competitive contract manufacturer (CCM) who has the option of producing a competing product and also has limited capacity. This setting consists of two levels of competition: competition in the component market between the CCM and the spot market, and competition in the final‐product market between the OBM and the CCM. The CCM first chooses the wholesale price and decides whether or not to sell a competing product to the customers. Next, the OBM decides the proportion of its component demand to outsource to the CCM, and then firms set the retail prices. We are interested in investigating the impacts of the CCM's capacity and the impacts of these two levels of competition. We show that the OBM might multisource its component demand only when competition in the final‐product market is intense. We also find that when the CCM's capacity increases, demand may decrease, while the retail price may increase. Moreover, the CCM can be worse off from having more capacity, even when the CCM's capacity is available for free. Our results also show that demand may increase when competition in the final‐product market becomes more intense. Finally, we find that the value of having a third‐party supplier to produce the component decreases amid the intensity of competition in the final‐product market.

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Multichannel Distribution Strategy: Selling to a Competing Buyer with Limited Supplier Capacity

Cited by 87 publications

References 24 publications

Production Coopetition Strategies for Competing Manufacturers that Produce Partially Substitutable Products

Production Coopetition Strategies for Competing Manufacturers that Produce Partially Substitutable Products

Excess procurement strategies by a dominant buyer under constrained supply

Optimal Outsourcing Strategies When Capacity Is Limited

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