Supply quality management with wholesale price and revenue-sharing contracts under horizontal competition

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In a number of industries (e.g., the airplane industry, aerospace industry, auto industry, or computer industry), certain suppliers essentially have a monopoly on the production technology for key components, and inevitably manufacturers in these industries have common suppliers. A key part of manufacturers' work with suppliers concerns improving the quality of their respective products, which gives rise to a collaborative activity usually termed as "supply quality management". When the manufacturers are competitors, they do not wish to see a common supplier dividing his involvement in quality improvement unequally between themselves and their rivals. However, as the suppliers collaborate with several manufacturers, it is highly questionable whether their efforts will be strictly equivalent for each manufacturer. In this paper, a non-cooperative dynamic game is formulated in which a single supplier collaborates with two manufacturers on design quality improvements for their respective products. The manufacturers compete for market demand both on price and design quality. The paper analyzes how each party should allocate resources for quality improvement over time. In order to take into account the potential coordinating power of the compensation scheme adopted in this type of decentralized setting, we compare the possible outcomes under a wholesale price contract and a revenue-sharing contract. (C) 2010 Elsevier By. All rights reserved.
Publisher
ELSEVIER SCIENCE BV
Issue Date
2010-10
Language
English
Article Type
Article
Keywords

COORDINATION

Citation

EUROPEAN JOURNAL OF OPERATIONAL RESEARCH, v.206, no.2, pp.329 - 340

ISSN
0377-2217
DOI
10.1016/j.ejor.2010.02.035
URI
http://hdl.handle.net/10203/21483
Appears in Collection
MT-Journal Papers(저널논문)
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