Knowledge that Transforms

We consider two competing supply chains, each consisting of supplier, a manufacturer, and a retailer. The suppliers exert effort to improve product quality, and the retailers sell products competitively. Each manufacturer chooses one of the three strategies: forward integration, backward integration, or no vertical integration. We seek for a subgame perfect Nash equilibrium and study the resulting market structure. Moreover, we characterize the effect of vertical integration on profitability, product price, and quality in a competitive setting. Existing literature has shown that, when manufacturers consider only forward integration, they may choose not to vertically integrate in equilibrium. In contrast, we find that, when both forward and backward integration options are considered, disintegration cannot be an equilibrium outcome. In this case, both manufacturers either forward or backward integrate, and the degree of product perishability, cost of quality, and how much consumers value quality are critical for the chosen direction of integration. Furthermore, competition increases attractiveness of backward integration relative to forward integration. We show that, while integrating backward unilaterally is always beneficial, unilateral forward integration can harm a manufacturer's profitability. Finally, vertical integration can result in a better quality product sold at a lower price.

The work of international humanitarian organizations (IHOs) frequently involves operating in remote locations, decentralized decision‐making, and the simultaneous implementation of development and disaster response programs. A large proportion of this work is funded by “earmarked” donations, since donors often exhibit a preference for the programs they are willing to fund. From extensive research involving qualitative descriptions and quantitative data, and applying system dynamics methodology, we model vehicle supply chains (VSCs) in support of humanitarian field operations. Our efforts encompass the often‐overlooked decentralized environment by incorporating the three different VSC structures that IHOs operate, as well as examining the entire mix of development and disaster response programs, and the specific (and virtually unexplored) effects of earmarked funding. Our results suggest that earmarked funding causes a real—and negative—operational impact on humanitarian disaster response programs in a decentralized setting.

This study investigates the roles of bank and trade credits in a supply chain with a capital‐constrained retailer facing demand uncertainty. We evaluate the retailer's optimal order quantity and the creditors' optimal credit limits and interest rates in two scenarios. In the single‐credit scenario, we find the retailer prefers trade credit, if the trade credit market is more competitive than the bank credit market; otherwise, the retailer's preference of a specific credit type depends on the risk levels that the retailer would divert trade credit and bank credit to other risky investments. In the dual‐credit scenario, if the bank credit market is more competitive than the trade credit market, the retailer first borrows bank credit prior to trade credit, but then switches to borrowing trade credit prior to bank credit as the retailer's internal capital declines. In contrast, if the trade credit market is more competitive, the retailer borrows only trade credit. We further analytically prove that the two credits are complementary if the retailer's internal capital is substantially low but become substitutable as the internal capital grows, and then empirically validate this prediction based on a panel of 674 firms in China over the period 2001–2007.

We consider an original equipment manufacturer (OEM) who faces competition from an independent remanufacturer (IR). The OEM decides the quality of the new product, which also determines the quality of the competing remanufactured product. The OEM and the IR then competitively determine their production quantities. We explicitly characterize how the OEM competes with the IR in equilibrium. Specifically, we show that the OEM relies more on quality as a strategic lever when it has a stronger competitive position (determined by the relative cost and value of new and remanufactured products), and in contrast it relies more heavily on limiting quantity of cores when it has a weaker competitive position. The IR's entry threat as well as its successful entry can decrease the consumer surplus. Furthermore, our results illustrate that ignoring the competition or the OEM's quality choice leads to overestimating benefits of remanufacturing for consumer and social welfare. In addition, we show an IR with either a sufficiently weak competitive position (so the OEM deters entry) or a sufficiently strong one (so the OEM is forced to limit quantity of cores) is desirable for reducing the environmental impact. Comparing our results with the benchmark in which the OEM remanufactures suggests that encouraging IRs to remanufacture in lieu of the OEMs may not benefit the environment. Furthermore, the benchmark illustrates that making remanufacturing more attractive improves the environmental impact when the remanufacturer is the OEM, while worsening it when remanufacturing is done by the IR.