208 / 2024-04-23 11:06:02

Production Sourcing Strategy in a Multi-tier Supply Chain with Wholesale Price Discrimination

Wholesale Price Discrimination,Co-opetition,Competition,Sourcing Strategy,Multi-tier Supply Chain

Production sourcing strategy has been a critical issue for original equipment manufacturers (OEMs). With the development of the manufacturing industry, OEMs have three sourcing strategies to choose: in-house production, sourcing from non-competitive contract manufacturers (NCMs) or competitive contract manufacturers (CCMs). However, the interactions among supply chain members make it hard for OEMs to make the decision, especially when considering the important but widely neglected role played by the material supplier. Different from prior research, we endogenize the supplier’s wholesale price and build stylized models to examine the impact of wholesale price discrimination on the OEM’s optimal production sourcing strategy in a multi-tier supply chain. Surprisingly, we find that the OEM’s sourcing from the CCM withers under uniform wholesale pricing but thrives at equilibrium in the presence of wholesale price discrimination. The co-opetition between the OEM and the CCM can prevent the buyers from being discriminated by the supplier, which may be beneficial for the former two members but detrimental for the latter. To further analyze the merits of wholesale price discrimination, we identify the strategy remaining and switching regions, where the OEM’s optimal sourcing strategy remains the same and switches correspondingly. The results indicate that wholesale price discrimination may bring more profits for the supply chain members and the entire supply chain under different conditions, which does not necessarily hurt consumer surplus and social welfare. We extend our main model to consider the scenarios of unobservable wholesale price contract terms and endogenous wholesale price discrimination, respectively.