Strategic decision making and organizational structures in a vertically-integrated supply chain

Abstract

A vertically-integrated producer (VIP) makes strategic decisions by an authority with a single objective (centralization) or by multiple authorities with various objectives (decentralization). It is already known in the literature that how the VIP makes the decisions changes by the presence of a retail rival who is also a wholesale customer of the VIP. In the first chapter of this thesis, I investigate the impacts of demand uncertainty and product differentiation on the VIP's choice of the organizational structure, i.e., centralization vs. decentralization. It turns out that centralization is more beneficial to the VIP when the products are less differentiated whereas decentralization more beneficial to the VIP when the products are highly differentiated. Also, the VIP's choice of organization structure is more likely to change as demand variability increases. In the second chapter of this thesis, I investigate the impacts of the mode of competition and the arm's length principle on the decentralized VIP's strategic decisions when a retail rival is also a customer. I find that the profits of each entity in the supply chain change by the mode of competition and by the presence of the arm's length principle. Also, I find that the arm's length principle may actually lead to a lower consumer surplus.