Research On Downstream Market Entry Of Supply Chain Based On Spot Market

This paper investigates a two-echelon supply chain with a spot market. Both the supplier and the manufacturers are risk averse, and have a mean-variance preference over their risky profits. We model the supplier as a Stackelberg leader and the manufacturers as followers that engage in a Cournot Competition in the downstream market. The purpose of this paper is to study the effects of entry in a downstream market on players’ pricing strategy, sourcing strategy, production strategy as well as their utilities. The paper is organized as follows.Chapter 1, The Introduction. In this section the background and related literature are introduced. In addition, a summary of main content and literature contribution is given here.Chapter 2, Oligopolistic Competition Equilibriums and Effects on Players’ Strategies under Downstream Entry in Presence of a Spot Market. We analyze the interaction of downstream entry and risk management of the players. Our study reveals that the downstream entry may cause the contract price of the supplier to increase or decrease. This result is rooted from three purposes of the downstream manufacturers when making their contract procurement decisions: production, demand-hedging and speculation, which change in different directions with downstream entry. Our findings are in contrast to traditional wisdom, which implies that spot market has changed the power and relationship of supply chain members to some degree.Chapter 3, Effects of Downstream Entry on Players’ Channel Allocation and Utilities in Presence of a Spot Market. We explore the effects of downstream entry on players’ channel allocation and utilities based on the findings in chapter 2. High volatility spot market may cause the low capacity supplier engage in speculation when downstream market is not sufficiently competitive. However, as the competition becomes fiercer, contract trading is preferable by supply chain members, and supplier will stop speculation. We further demonstrate that the downstream entry may not always benefits the supplier and hurt the downstream manufacturers. Interestingly, we find that in a low volatility spot market, downstream entry may benefit the supplier, the manufacturer as well as the consumers. In sum, the effects of downstream entry results from the collaborative influence of spot market volatility, companies’ risk attitudes, supplier’s capacity and the competition level in the downstream market.Chapter4, Discussion and Conclusion.