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Strategic Cooperation with Differential Suppliers’ Ability under Downstream Competition in Complex Products Systems

  • Jinhua Zhou
  • Jianjun ZhuEmail author
  • Hehua Wang
Article
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Abstract

This paper investigates the strategic cooperation of two competitive suppliers with different abilities and a weak main manufacturer in Complex Products Systems (CoPS), where a main manufacturer signs a revenue-sharing contract based on a relationship-specific investment with the stronger supplier. The stronger supplier provides one key element to the main manufacturer and encroaches on the downstream market by producing substitutable final products simultaneously. We consider multi-period decisions, by building different models based on centralized, decentralized, and cooperative decisions. The equilibrium strategies are characterized under downstream competition, and optimal cooperation strategies are derived by building multi-period game models. The results showthat strong cooperation can enhance the economic performance of each individual aswell as the whole supply chain. The weak main manufacturerwould face the risk of strong suppliers’ supply interruptions when the competitive degree of suppliers and downstream competition are fierce enough under decentralized decisions. Additionally, the gap in the abilities of the two competitive suppliers reduces the main manufacturer’s profitability. However, the revenue-sharing contract based on a relationship-specific investment canmotivate the strong supplier to establish cooperation relationship and improve both stakeholders’ profitability. Moreover, strategic cooperation is efficient to prevent the strong supplier encroaching on downstream and has a positive impact on boosting the weak main manufacturer’s market share. Meanwhile, nurturing a domestic supplier is an effective measure for improving competitiveness and indigenous technological capability of the main manufacturer in CoPS. Finally, some useful management sights on cooperation strategy and optimal decisions are derived.

Keywords

Cooperation downstream competition CoPS contract coordination suppliers’ ability 

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Notes

Acknowledgments

The authors really appreciate the editors and the referees for their valuable comments and suggestions that have greatly improved this article. Thisworkwas partially supported by the National Natural Science Foundation of China under Grant Nos.71171112 and 71502073, the PostgraduateResearch and Practice Innovation Program of Jiangsu Province under Grant KYCH17_0223 and China scholarship council under Grant No.201806830048.

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Copyright information

© Systems Engineering Society of China and Springer-Verlag GmbH Germany 2019

Authors and Affiliations

  1. 1.College of Economics and ManagementNanjing University of Aeronautics and AstronauticsNanjingChina
  2. 2.School of BusinessJinling Institute of TechnologyNanjingChina

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