Strategic cooperation with capital-constrained supplier and downstream competition in complex product systems

Abstract

The paper characterizes cooperation and coordination strategies in complex product systems (CoPS). Capital-constrained supplier and downstream competition are considered in a “manufacturer-suppliers (MS)” mode with a weak main manufacturer and a powerful supplier. The capital-constrained supplier provides a key element to the main manufacturer and encroaches in the downstream market through simultaneous production of substitutable final products. The weak main manufacturer designs a revenue-sharing contract based on a relationship-specific investment to cooperate with the powerful supplier and finally improve its indigenous technological capability. By building Stackelberg and bargaining games, the co-opetition equilibriums and coordination strategies are derived and compared under different conditions. The results show that the cost structure, the abilities of the two players, and the ability of the main manufacturer’s technology learning have significant effects on the optimal strategies; moreover, the impacts of the threshold value of the supplier’s capital and the relationship-specific investment on the optimal cooperation strategies are very different. Overall, the coordination strategy can alleviate downstream competition and enhance both players’ profitability effectively.