Competition And Cooperation Under Supply Chain Management

Coopetiton, a hybrid behavior comprising competition and cooperation or an incomplete congruence of interests and goals concerning firms’ interdependence, in a supply chain refers to the philosophy and practice that instead of competing to gain as much as possible from a fixed pie of the chain profit, members of the supply chain compete and cooperate at the same time to create a bigger pie. It also reflects the recognition of mutual dependence of the partners with the con-sideration of sustainable business relationships or a type of social responsibility, especially in emerging markets. Motivated by the ever-growing coopetiton prac-tice, this paper presents a framework to address how does it affect supply chain performance in the context of both a push and pull supply chain. From guar-anteeing the partner a positive profit, an altruistic utility, or a weighted sum of one’s own expected profit and the partner’s expected profit, can be constructed equivalently. The parameter representing this portion of the partner’s profit also reflects the degree of altruism, or a metric on the concern for the system profit, rendering the purely competitive chain and the centralized chain to be extreme cases. Interestingly, this equivalence implies a novel way of estimating the value of altruistic preference, one of core concepts in the behavioral operations man-agement. Moreover, coopetiton can mitigate double marginalization and increase supply chain efficiency. This provides another explanation of the popularity of the wholesale price contract in practice.A more cooperative leader benefits the chain but a more cooperative follower mitigates this benefit. In addition, coopetiton can lead to win-win, i.e., both parties are better off than in a competitive chain in terms of their own expected profits. Win-win is more likely if the retail price is high, or the production cost is low, or the demand is more uncertain. One necessary condition for win-win is that the leader should be more cooperative. So it echoes the popular belief on the leader’s responsibility. Meanwhile, when the sum of each guaranteed profit is larger than the pie of the competitive pull chain, both the supply chain efficiency and each player’s profit are determined solely by the guaranteed profit term, and so the difference of supply chain performance between the push and pull chain disappears. The coopetition dominates the inventory risk, which differentiates the competitive push and pull chains.Furthermore, for quality improvement in a supply chain, the contract spec-ifying the target defect rate is more effective than the contract with subsidy to motivate the supplier to improve quality.Finally, this paper can help to explain why it is common for the leader to hold the shares of the follower, rather than letting the follower hold the leader’s shares, in partial cross holding, which refers to a situation where each firm holds a portion of its partner’s shares.