166 / 2024-04-22 14:12:10

Go Wide or Go Deep? An OEM’s Optimal Channel Strategy with Used Serviceable Material Sales

USM sales；,channel choice strategy,MRO service queue competition

The sales of used serviceable material (USM) have become increasingly popular in the spare parts industry, encroaching on the market share of original equipment manufacturers (OEMs). To address this challenge, an OEM can adopt either a “go deep” strategy by vertically integrating with its downstream independent maintenance, repair, and overhaul (MRO) service provider (IMSP) or a “go wide” strategy by horizontally merging with its competitor—the independent USM supplier (USP). This study develops a game-theoretic model to investigate three channel strategies for an OEM under the MRO service queuing framework. Our analysis shows that whether an OEM should go deep or wide depends on the USM’s quality and the USP’s downstream service capacity. When the USP’s downstream IMSP has adequate capacity, the OEM’s channel preference shifts from the “go deep” to the “go wide” strategy as the USM’s quality increases. However, when the USP’s downstream IMSP has insufficient capacity, quality improvement of the USM may not incentivize the OEM to adopt either go deep or go wide strategy. In addition, the “go deep” strategy can induce a win‒lose situation for both the USP and the OEM, and the “go wide” strategy always induces a lose‒lose situation for two downstream IMSPs.