Abstract
More and more contract manufacturers have started to establish their own brands besides providing manufacturing service for retailers who operate exclusive well-known brands. This paper studies the encroachment strategy of a contract manufacturer in a supply chain and the impact of fairness concern. Four scenarios are investigated by building game models: no fairness concern, the retailer’s fairness concern, the contract manufacturer’s fairness concern, and both members’ fairness concern. The results show that when there is no fairness concern, the contract manufacturer always has motivation to encroach. However, when there exists fairness concern, only when the reservation price is sufficiently high, the contract manufacturer will encroach. Fairness concern has certain strength to stop the contract manufacturer’s encroachment. When the reservation price is sufficiently low, the encroachment of the contract manufacturer benefits the retailer, or else it will harm the benefit of the retailer. The effect of fairness concern on profit margin and wholesale price decisions is opposite under different encroachment strategies. However, the fairness concern has no impact on the retail price of the private brand. Under encroachment strategy, contract manufacturer’s or both members’ fairness concerns have positive effect on the retailer’s profit in certain conditions. However, the fairness concern always decreases the contract manufacturer’s profit no matter what the form it is. Numerical examples show that it is best for the supply chain that both members have fairness concern under no encroachment. However, when the contract manufacturer has a private brand, it is best for the supply chain that no one has fairness concern when the advantageous inequity concern parameter is sufficiently low. When the advantageous inequity concern parameter is sufficiently high, it is best for the supply chain that both members have fairness concern.
Highlights
In past decades, outsourcing has played an important role in world economy [1,2,3]. ere are a lot of contract manufacturers who provide production services for wellknown brands in China. e rapid development of e-commerce provides contract manufacturers with opportunities to sell directly to consumers
Sumvim has been cooperating with Pinduoduo Inc. (PDD) to promote her private brands while the latter has been one of the largest online group discounters in China
PDD launched the “New Brand Plan” at the end of 2018 aiming to hep 1000 manufacturers in China to establish their private brands. ere are a lot of contract manufacturers adopting the same strategy as Sumvim, such as Guangdong Songfa Ceramics Co., Ltd., Zhejiang Sanhe Kitchenware Co., Ltd., and so on
Summary
In past decades, outsourcing has played an important role in world economy [1,2,3]. ere are a lot of contract manufacturers who provide production services for wellknown brands in China. e rapid development of e-commerce provides contract manufacturers with opportunities to sell directly to consumers. (4) How do different fairness concerns affect the decisions and profits of the contract manufacturer, the retailer, and the whole supply chain under two encroachment strategies?. E most studied encroachment in supply chain is the retailer’s private label/store brand [11,12,13,14,15] and manufacturer’s dual-channel strategy [16,17,18,19]. For dualchannel setting where the manufacturer builds a direct channel selling the same product with traditional retail channel, there are a lot of studies considering the fairness concern problem. Irdly, this paper studies the impact of fairness concern on the encroachment strategy of the contract manufacturer
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