Abstract
In this paper, we study make-or-buy decisions with the consideration of retail-level competition, in which a supplier provides substitutable products to two retailers. One incumbent retailer is capable of producing the product in-house and makes the make-or-buy decision, while the rival retailer can only outsource from the supplier. Intuitively, the incumbent will not outsource if the wholesale price is higher than its production cost. However, we illustrate this may not be true when the supplier also supplies the retail rival. In this case, the incumbent may accept a high wholesale price to limit the suppliers incentive to serve the retail rival on particularly favorable terms. Moreover, under certain circumstances, the supplier may charge a wholesale price lower than its production cost to attract orders from the incumbent, which can generate for the supplier and the incumbent a higher total profit than the situation in which the incumbent makes the product in-house.
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Acknowledgments
The authors thank referees for their help to improve the quality of the paper. This paper has been supported by National Natural Science Foundation of China 71831007, 71571079, 71571160 and Social Science Foundation in Zhejiang Province 13ZJQN041YB, and by the Fundamental Research Funds for the Central Universities, No.2019kfyXMBZ046
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Jianbin Li is a professor in the School of Management at the Huazhong University of Science and Technology, China. He received his Ph.D. in applied mathematics from the Wuhan University in 2007. His research focuses on e-commerce, health care administration, logistics and supply chain management. He has published in Production and Operations Management, Decision Sciences, European Journal of Operational Research, and many others. He is an Editorial Board Member of Journal of Systems Science and Mathematical Sciences, etc.
Yingying Wang is a master candidate in the School of Management at the Huazhong University of Science and Technology, China. Her research interests focuses on logistics and supply chain management.
Xiaomeng Luo is an associate professor in the School of Business Administration at the Southwestern University of Finance and Economics, China. She received her Ph.D. in marketing from the City University of Hong Kong in 2016. Her research focuses on supply chain management, e-commerce, operations management and marketing interface.
Weihua Zhou is a professor in School of Management at Zhejiang University, China. He received his Ph.D. in Industrial Engineering and Engineering Management from The Hong Kong University of Science and Technology in 2007. His current research interests include logistics and supply chain management, supply chain finance. He has authored or co-authored about 20 papers in several academic journals, including Operations Research.
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Li, J., Wang, Y., Luo, X. et al. Make or Buy in the Presence of Strategic Competition on Substitutable Products. J. Syst. Sci. Syst. Eng. 28, 657–673 (2019). https://doi.org/10.1007/s11518-019-5415-y
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DOI: https://doi.org/10.1007/s11518-019-5415-y