Qingqing Lu, Weizhe Yang, Chuiri Zhou and Ningning Wang
This study aims to investigate whether the contract manufacturer (CM) should take the first-mover advantage in the end-product without supplying core components to the original…
Abstract
Purpose
This study aims to investigate whether the contract manufacturer (CM) should take the first-mover advantage in the end-product without supplying core components to the original equipment manufacturer (OEM) immediately, or should fully squeeze the benefit of the learning effect through an amplified production quantity by letting the OEM enter the end-product market early.
Design/methodology/approach
The authors propose a two-period model for a supply chain consisting of a CM and an OEM where the CM has four alternative entry strategies concerning it competition to the OEM in the end-product market. For each strategy, the authors derive the equilibrium solutions of the two firms using a backward approach. Comparison leads to the CM’s final choices among the four strategies.
Findings
For both CM and OEM, the monopoly and the first-entry strategies will be dominated by either the post-entry or the simultaneous-entry strategy, and thus, their preferred strategy is chosen from the latter two. Regarding the two firms choices between the post- and simultaneous-entry strategy, the CM prefers the post-entry strategy when the OEMs brand premium is at a moderate level, whereas the OEM prefers the post-entry strategy when its brand premium is low, and the learning effect can amplify the interval for the CMs adopting the post-entry strategy as well as changes the interval for the OEMs preference related to the two strategies.
Originality/value
This paper is the first one to explore the optimal strategy for a CM to maximize its profit in a co-opetitive supply chain situation with a CM and an OEM. The authors believe that our paper contributes to both literature and the market.
Details
Keywords
This paper aims to study a retailer’s decision on the price and inventory when facing strategic consumer behavior and demand uncertainty. Price protection is a kind of rebate that…
Abstract
Purpose
This paper aims to study a retailer’s decision on the price and inventory when facing strategic consumer behavior and demand uncertainty. Price protection is a kind of rebate that the retailer provides to consumers when the price drops during the selling season. The research investigates whether price protection can bring the retailer advantages. This paper compares price protection’s impact with price commitment. In addition, the paper studies the price protection’s impacts on supplier of the supply chain.
Design/methodology/approach
In this model, there are three alternative strategies for retailer: no price protection policy, full price protection policy and partial price protection policy. The selling season is divided into two periods: regular period and sale period. In the regular period, the products are sold at a regular price. In the sale one, the products are sold at a lower price. By adopting rational expectations equilibrium, this paper analyzes retailer’s optimal price and order quantity under each policy and compares optimal decisions and maximum profits of three policies.
Findings
This paper finds that the price protection has a positive influence on the retailer. Strategic consumers are induced to purchase at the regular period. It can simultaneously increase retailer’s profit and reduce inventory risk. Meantime, full price protection is chosen as the optimal policy. By comparing full price protection’s impacts with price commitment, full price protection is considered as the most profitable strategy, while price commitment can bring lower inventory risk. In addition, the profit of supplier would decrease because of price protection.
Originality/value
This research provides a new method to address the negative effects of strategic consumer behavior. It also brings some managerial insights to some retailers, especially online ones, on whether to adopt price protection.