Manufacturers' vertical integration strategies in competing three‐tier supply chains with asymmetric customer loyalty

Abstract

AbstractThis study investigates manufacturers' vertical integration strategies within two competing three‐tier supply chains, focusing on the dynamics of asymmetric supply chains. This asymmetry stems from varying customer loyalties toward two products engaged in pricing and quality competition. By characterizing the equilibrium operational decisions and integration choices, we provide insights into how asymmetric customer loyalty compares and price–quality competition collectively influence the equilibrium channel structure. Our findings highlight that the option for backward integration can lead to an asymmetric equilibrium channel structure, driven by disparities in customer loyalty. In cases marked by significant differences in customer loyalty and a high market demand for product quality, the manufacturer with weaker customer loyalty might unilaterally implement decentralization. This analysis illuminates scenarios where manufacturers diverge from conventional integration norms and offers valuable insights into evolving supply chain dynamics.