Investment Policies Of Competing Manufacturers Under Spillovers Effects

As the competition of business environment becomes more and more intense,a great many of firms seek ways to enhance competitive advantages,aiming to achieve the goal of sustainable development.Among which,making investments to improve product quality or reduce production cost is one of the effective measures,and has been paid more and more attention to many enterprises.However,the common phenomenon in practice is that when a manufacturer makes investment,it is possible that the investment may also improve its competitors' product quality or reduce their product cost due to the spillovers effects,which will adversely affect the quality or cost competitive advantage of the investor and weaken the investor's incentive in investing.Under this circumstance,the key issues research questions are:Should competitive firms adopt investment strategies such as quality investment,process investment,etc.,to obtain the corresponding competitive advantage?If so,how the spillovers effects influence the investor's optimal pricing decisions,investment effort and its optimal profit?What is the impact of spillovers effects on the optimal decisions and profits of other game players?In addition,innovation is the main source and driving force for a country,the society and the firms to move forward.The government has introduced various polices to enhance firms' enthusiasms in process investments,such as tax reduction and subsidies augment.Taking those factors into consideration,how would the spillovers effects affect the firms' investment strategy?How should the government arrange the optimal subsidy to maximize the social welfare and meanwhile induce the firms to improve their investment level?What is the impact of spillover effects on the consumers?In this paper,we develop game theoretic models under different settings by game theory,optimization theory,management,economics,marketing science,and computer simulation,etc.,multi-disciplinary theories and methods.Backward induction is used to get the equilibrium outcomes of each model.Then,we make comparative static and sensitive analysis of the optimal results,and systematically investigate the firms' optimal investment strategies in the presence of spillovers effects.Specifically,we mainly studied the following research questions.First,we studied the issue whether or not two competitive manufacturers should make quality investment in the case where the investment exists spillovers effects.We develop the benchmark model without quality investment,and compare the equilibrium outcomes with those in the setting where a single manufacturer invests and both manufacturers invest,respectively.The results show that,the manufacturer who makes quality investment will gain improvement in demand and marginal revenue,regardless of whether its competitor adopts the investment policy or the degree of the spillovers effects.However,it does not mean that the investor will definitely obtain more profit.We reveal that the investor becomes better off only when its quality investment seldom spills over to the other manufacturer;otherwise it will suffer a loss.Comprehensive comparisons show that the spillovers effects play key roles in affecting the two competing manufacturers' optimal quality investment policies.In particular,if bot the two manufacturers face small degree of spillovers effects,then they are willing to make quality investments.If one manufacturer faces a small degree of spillovers effects whereas the other faces a big one,then the former will behave as the solo investor and the latter as the free rider.If both the two manufacturers face big degree of spillovers effects,then all of them have no incentives to make quality investment.Afterwards,we studied the influence of spillovers effects on the government's optimal subsidy and the process investment strategies of two Cournot-competing firms,under the condition that the process investment exists spillovers effects.We establish four decision models in the case where there is no investment,decentralized decision-making,joint investment,and centralized decision-making,respectively.We then compare the equilibrium outcomes and characterize the impact of spillovers effects on the optimal decision and profit of each game party.The results show that,the manufacturers have incentives to make process investments in the presence of government subsidy.If the spillovers effects are weak,the subsidy rate under joint investment will be in the highest level,but the manufacturers choose the centralized decision-making.If the spillovers effects are at medium level,the optimal strategies of the two manufacturer are to make joint investment and will hence gain the highest level of subsidy from the government.Otherwise,the manufacturers choose the decentralized decision-making.Also,the government would set the highest level of subsidy for the two manufacturers.Moreover,both the decentralized decision-making and joint investment can keep investment level,consumer surplus,and social welfare at the optimal levels.Surprisingly,the centralized decision-making not only weakens the two manufacturers' incentives in process investment,but also does harm to consumer surplus and social welfare.Finally,we studied the impact of spillovers effects on the structure of two supply chains under the case where the manufacturers' process investment exist spillover.In each supply chain,the manufacturer sells partial substituted product to the market through its downstream retailer.The two manufacturers decide whether or not to make process investment to reduce their respective production cost If so,the two manufacturers choose to invest independently or cooperatively;the two retailers determine their order quantities individually or cooperatively.Based on the above choices,the decision-models are established in six different cases,i.e.,two cases where the retailers order products individually or cooperatively when there is no investment;four cases in which the retailers order products individually or cooperatively when there exists investment,and the two manufacturers conduct joint investment and competitive investment,respectively.By using the backward inductions,we obtain the equilibrium outcomes of each model and then make comparisons of them.The results show that the structure of the two supply chains is affected by the spillovers effects.Particularly,if the spillovers effects are weak,the two supply chains will be in a pure competition situation,and neither manufacturer makes process investment.If the spillovers effects are strong,the two supply chains will be in a coopetitive situation where the two manufacturers make joint investment and the two retailers conduct Cournot competition.Under no circumstance will the two retailers make order decisions cooperatively,regardless of the spillovers effects.In addition,the spillovers effects have positive influences on the optimal investment levels,supply chain performance,consumer surplus,and social welfare.