Sourcing under competition: The implications of supplier capital constraint and supply chain co-opetition

Abstract

This paper investigates a manufacturer’s strategic sourcing and supplier financing strategies under downstream horizontal competition and co-opetition. When the manufacturer and the rival engage in a simultaneous-move game, we show that the manufacturer should always exclusively source from and offer finance to a cost-advantageous supplier if the latter is severely capital-constrained. If the supplier is moderately capital-constrained, however, the manufacturer’s preferred sourcing strategy depends on the type of the backup supplier, which leads to a horizontal competition or co-opetition structure. We also examine the robustness of the results by studying the sequential-move game.