Title: Vertical integration in competing supply chains under additive stochastic demand

Authors: Chongqi Wu; Hongwei Du; Xinjian Lu

Addresses: Department of Management, California State University, East Bay, Hayward, CA 94542, USA. ' Department of Management, California State University, East Bay, Hayward, CA 94542, USA. ' Department of Management, California State University, East Bay, Hayward, CA 94542, USA

Abstract: This article addresses the decision of integration/decentralisation from manufacturers| perspective in competing supply chains under demand uncertainty. Two manufacturers are considered. Each manufacturer produces a substitutable product and sells it through either a decentralised or an integrated retail store, modelled as a price-setting newsvendor. An additive stochastic demand function is employed to characterise demand and its uncertainty. Results indicate that the impact of demand uncertainty on integration/decentralisation is complicated since it may favour either integration or decentralisation, depending on how demand uncertainty is characterised. Another important finding is that increase in horizontal competition does not necessarily hurt manufacturers and/or retailers.

Keywords: competitive newsvendors; supply channels; game theory; vertical integration; additive stochastic demand; supply chain competition; demand uncertainty; decentralisation.

DOI: 10.1504/IJIIM.2012.044462

International Journal of Intercultural Information Management, 2012 Vol.3 No.1, pp.82 - 106

Available online: 25 Dec 2011 *

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