Supplier encroachment deterrence through a target-oriented retailer

Abstract

We investigate the interaction between the retailer’s target-based preference and supplier encroachment. The retailer might be risk-neutral (expects maximum profit) or target-oriented (maximizes his potential to achieve the target profit), and the supplier can be encroaching or not encroaching. We characterize the retailer’s target-oriented behavior using a CVaR-satisficing metric and a game theoretical framework. We find that the retailer setting an appropriate target is beneficial to the encroaching supplier. In particular, when a retailer has a specific target, the target-oriented retailer can make the encroaching supply chain reach the same efficiency as the centralized encroaching system. Different from previous studies, when the retailer’s target is high, the target-oriented retailer performs worse in the encroaching supplier than the non-encroaching supplier. In addition, if the retailer’s target and demand variability are low, the performance of encroaching supplier and target-oriented retailer will perform better than that of non-encroaching supplier and target-oriented retailer, thus achieving a win-win situation. We can provide managers with essential guidance: i) the encroaching supplier may exploit the retailer’s target-based preferences, and retailers should be cautious in making decisions based on target preferences; ii) the retailer setting a high target can benefit the encroaching supplier and the supply chain; iii) the retailer needs to set a reasonable target to achieve a win-win situation between the encroaching supplier and the target-oriented retailer.