Optimal integration and bargaining decisions in asymmetric competing supply chains under virtual bargaining

Abstract

This study examines the effects of asymmetric settings and horizontal interaction under three strategies with and without virtual bargaining, including vertical integration (VI), manufacturer’s Stackelberg (MS), and bargaining (BW) strategies—on channel members’ strategy selection in a competing supply chain (CSC) system. We also consider the effect on the performance of channel members, the overall channel, and the entire supply chain. The analysis focuses on whether a manufacturer should adopt a VI or BW strategy compared with the MS strategy. Without virtual bargaining, some counterintuitive results show that manufacturers always choose the VI strategy, but more intense competition could cause them to be trapped in a prisoner’s dilemma. It is known that the BW strategy enables channel members to achieve Pareto improvement, but we find that manufacturers will only choose it under a BW strategy with retailers’ subsidies. With virtual bargaining, we obtain similarly counterintuitive results. Overall, virtual bargaining, horizontal interaction, and asymmetric settings have a minor effect on strategy selection, while having notable ramifications for the performance of channel members, the overall channel, and the entire supply chain. Interestingly, competition between different channels as well as the double-marginal effect within a channel can be reduced by virtual bargaining. Most notably, when compared with the MS and VI strategies, virtual bargaining has the least negative effects on consumer utility and social welfare under the BW strategy.