Inducing manufacturer’s quality enhancement via retailer’s acquisition strategy

Abstract

This paper investigates a manufacturer’s quality enhancement and a retailer’s acquisition strategies in a decentralized supply chain setting, wherein the consumer preference is unknown initially but can be resolved by the retailer’s acquisition behaviour. To uncover the strategic effect of acquisition timing, we specifically consider two scenarios, committed acquisition and contingent acquisition, depending on whether the retailer has to commit to her acquisition strategy before or after the manufacturer’s quality enhancement decision. We show that under either scenario, there exists a positive interaction between the manufacturer’s quality and the retailer’s acquisition decisions. However, under committed acquisition scenario, the retailer is more active on adopting acquisition than that under contingent acquisition scenario, and the manufacturer’s quality investment remains at a stable level that is independent of the acquisition cost. Differently, under contingent acquisition scenario, although the retailer possesses a lower acquisition incentive, she can induce the manufacturer to invest a higher quality level via acquisition than that under committed acquisition scenario. Under such a circumstance, the enhanced quality level monotonically increases in the acquisition cost. The retailer prefers contingent acquisition when the acquisition cost falls into an intermediate range that acquisition results in an higher quality enhancement than that under committed acquisition. In contrast, the manufacturer can always derive a higher payoff under the committed acquisition scenario.