Title: Strategic Deterrence in a Supply Chain with Entry Threat
Abstract:In this paper, we investigate the impact of the potential entry by an entrant on the incumbent supply chain that consists of a manufacturer and a retailer. We show that depending on the magnitude of t...In this paper, we investigate the impact of the potential entry by an entrant on the incumbent supply chain that consists of a manufacturer and a retailer. We show that depending on the magnitude of the entrant's selling cost, one of the following three scenarios occurs in equilibrium, namely, market entry, threat of entry and no entry. Specifically, when the entrant's selling cost is low, market entry materializes and the entrant's entry induces the incumbent parties to behave more coordinatively: the retailer orders more while the manufacturer lowers its wholesale price compared to that in the absence of the entrant. This dampened the double marginalization and may benefit the incumbent parties. When the entrant's selling cost is moderate, the market entry does not materialize but the threat of entry indeed exists. Under such situation, the retailer actively deters the entrant's entry via over-ordering. Meanwhile, the manufacturer free rides on such deterrence behavior and sets a wholesale price even higher than that in the absence of the potential entry. The threat of entry hurts the retailer but may benefit the manufacturer. When the entrant's selling cost is high, the entrant' entry threat is noncredible and no entry occurs. We show that when the incumbent supply chain possesses a stronger cost advantage over the entrant (in terms of the selling cost), it does not necessarily make them better off. In contrast, the incumbent parties can be better off when the market potential of the entrant is larger and/or the competition brought by the entrant is fiercer.Read More
Publication Year: 2019
Publication Date: 2019-03-11
Language: en
Type: article
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