Vertical Integration under Competition: Forward, Backward, or No Integration?

• 成果类型: Article
• 署名作者: Lin, Yen-Ting; Parlaktuerk, Ali K.; Swaminathan, Jayashankar M.
• 署名单位: University of San Diego; University of North Carolina; University of North Carolina Chapel Hill
• 刊物名称: PRODUCTION AND OPERATIONS MANAGEMENT
• ISSN/ISSBN: 1059-1478
• DOI: 10.1111/poms.12030
• 发表日期: 2014
• 页码: 19-35
• 关键词: Vertical Integration; COMPETITION; supply chain; QUALITY; pricing

摘要

We consider two competing supply chains, each consisting of supplier, a manufacturer, and a retailer. The suppliers exert effort to improve product quality, and the retailers sell products competitively. Each manufacturer chooses one of the three strategies: forward integration, backward integration, or no vertical integration. We seek for a subgame perfect Nash equilibrium and study the resulting market structure. Moreover, we characterize the effect of vertical integration on profitability, product price, and quality in a competitive setting. Existing literature has shown that, when manufacturers consider only forward integration, they may choose not to vertically integrate in equilibrium. In contrast, we find that, when both forward and backward integration options are considered, disintegration cannot be an equilibrium outcome. In this case, both manufacturers either forward or backward integrate, and the degree of product perishability, cost of quality, and how much consumers value quality are critical for the chosen direction of integration. Furthermore, competition increases attractiveness of backward integration relative to forward integration. We show that, while integrating backward unilaterally is always beneficial, unilateral forward integration can harm a manufacturer's profitability. Finally, vertical integration can result in a better quality product sold at a lower price.