Incumbent Producers Research Articles

Should the Internet of Things platform enter the smart device market?

PurposeThe Internet of Things (IoT) platform empowers the digital transformation of the manufacturing industry by providing information technology services. Simultaneously, it enters the market by offering smart products to consumers. In light of different service fee scenarios, this article explores the optimal decision-making for the platform. It investigates the pricing models and entry decisions of IoT platforms.Design/methodology/approachIn this study, we have formulated a game-theoretic model to scrutinize the influence of the IoT platform ventured into the smart device market on the pre-existing suppliers operating under subscription-based and usage-based pricing agreements.FindingsOur outcome shows that introducing an IoT platform’s smart device has a differential effect on manufacturers depending on their contract type. Notably, our research indicates that introducing the platform’s own smart device within the subscription-based model does not negatively impact the profitability of incumbent manufacturers, so long as there is a noticeable discrepancy in the quality of the smart devices. However, our findings within the usage-based model demonstrate that despite the variance in smart device quality differentiation, the platform’s resolution to launch their device and impose their pricing agreements adversely affects established manufacturers. Additionally, we obtain valuable Intel regarding the platform’s entry strategies and contractual inclinations. We demonstrate that the platform is incentivized to present its smart device when reasonable entry costs remain. Furthermore, the platform prefers subscription-based contracts when the subscription fee is relatively high in non-platform entry and entry cases.Originality/valueThese findings hold significant practical implications for firms operating in an IoT-based supply chain.

Blockchain development in a supply chain with rival entry

We investigate the impact of rival entry on blockchain technology development by modelling a supply chain, in which an incumbent manufacturer (she), facing the entry of an entrant manufacturer (it), develops the blockchain platform through investments to improve the traceability and transparency of products procured from one supplier (he). Our study shows the rival entry (competition) may not necessarily promote blockchain technology adopted by the incumbent manufacturer, whether the blockchain platform is permissioned or non-permissioned. Furthermore, the entry of a new firm may trigger an ‘all-win’ situation for all parties involved not only in the permissioned scenario but, surprisingly, also in the non-permissioned one. In such a situation, the incumbent manufacturer and the supplier will be both more profitable conditionally, after the entrant manufacturer enters the market. Finally, the issue that a permissioned or non-permissioned blockchain platform should be built is discussed in this work. If the use cost coefficient and the development cost coefficient of blockchain technology are both low, or if the use cost coefficient is high while the development cost coefficient is low (not very low), the incumbent manufacturer should establish a permissioned blockchain platform, and otherwise a non-permissioned one.

Preparedness for Data-Driven Business Model Innovation: A Knowledge Framework for Incumbent Manufacturers

Preparedness for Data-Driven Business Model Innovation: A Knowledge Framework for Incumbent Manufacturers

The Impact of Platform’s Information Sharing on Manufacturer Encroachment and Selling Format Decision

Motivated by recent practice observations, we consider an incumbent manufacturer who has an existing wholesale contract with an e-commerce platform, which the latter sells as a private label product in its online marketplace. In this context, the manufacturer launches its follower product, which will coexist alongside the private label product on the platform. We study the interplay between the manufacturer’s choice of selling format (i.e., reselling or agency) and how this choice influences the platform’s decision to share (or not to share) demand information with the manufacturer (i.e., information sharing policy). In particular, we examine how the platform’s information-sharing policy, depending on its perceived information accuracy, impacts the manufacturer’s selling format decision. Using game-theoretic analyses, we find that under low perceived information accuracy, the manufacturer adopts the agency format when the commission rate is low but the reselling format when the commission rate is high. However, the platform withholds the demand information. More interestingly, when the commission rate and perceived information accuracy are both high, the manufacturer switches from the reselling to the agency format and this induces the platform to share demand information. This benefits both the manufacturer and the platform with the Pareto-improving zone expanding when perceived information accuracy is at least moderate but shrinking when the market size potential of the follower product increases. Ultimately, both parties can benefit from information sharing once in business and when the commission rate is high. The platform should also invest in greater information accuracy in such conditions.

Switching to sustainable products: The role of time, product, and customer characteristics

AbstractAchieving a sustainable economy is one of the primary needs of our time, and sustainable products can play a decisive role in achieving this goal. This article seeks answers about the role of time and product characteristics in the intention to switch to a sustainable product using the example of an everyday product. Drawing from social identity theory, utility maximization and switching theory, the authors propose a conceptual model to examine these questions in a specific market disruption when a product is modified by the same company. The framework focuses on the time‐varying effects of customers' features (brand identification, loyalty, embeddedness) and products' features (perceived value [PV], compliance, switching cost) on switching behavior. The research was carried out using a quasi‐experimental method in three periods. In the first stage, Cox Proportional Hazard Regression was used, and a random‐effects model in the second. Results from longitudinal data of 282 customers during the launch of a new sustainable product show that customer characteristics do not influence the intention to switch. In contrast, the PV and switching costs inhibit the switching behavior, but their effects vary over time. In particular, the effect of the relative PV of the sustainable product on switching will increase over time, but the importance of customer–brand identification also rises. The study has important implications for introducing a sustainable equivalent of an incumbent product of the same brand.

A Novel Method for Visually Mapping Intellectual Property Risks and Uncertainties in Evolving Innovation Ecosystems: A Design Science Research Approach for the COVID-19 Pandemic

Prior management science literature proposes different visual methods for mapping ecosystems. These methods, however, largely lack an effective approach to visualizing intellectual property (IP) related risks and uncertainties appearing among stakeholders as the innovation ecosystem evolves. Using the design science research methodology, we develop a novel method that visualizes loci of IP risks and uncertainties, as well as dynamics of IP ownership and usage in evolving innovation ecosystems. We demonstrate and evaluate the effectiveness of the new method in uncovering IP related risks and uncertainties by presenting results from applying the method to the innovation ecosystem for crisis-critical products during the COVID-19 pandemic. The currently ongoing pandemic has caused structural changes to that innovation ecosystem with new relationships being formed between incumbent manufacturers and new entrants that have rushed into that innovation ecosystem to support the upscaling of manufacturing capacities. This article contributes to the literature on visual methods for innovation ecosystems and provides a new method for researchers, practitioners, and policy makers to identify IP related risks and uncertainties that can arise when innovation ecosystems undergo structural changes. The method allows researchers to formulate and test new theories, as well as practitioners and policy makers to develop strategies to anticipate and mitigate IP risks and uncertainties.

Entry deterrence strategies for an incumbent supply chain in the presence of inertial consumer and optimistic entrant

AbstractWhen entering a new market, entrepreneurs generally hold an optimistic belief about the inertia of consumers (i.e., consumer's tendency to repurchase the incumbent product), leading to a high rate of failure. This paper constructs a supply chain with one manufacturer, one retailer, and one potential optimistic entrant who attempts to enter the wholesaling market. We characterize how the behaviors of the entrant's optimism and consumer's inertia jointly affect the pricing (deterrence) strategy of the incumbent manufacturer, entry strategy of the entrant, and equilibrium decisions in the post‐entry game. Interestingly, our results show that: (i) in the post‐entry game, both behaviors could benefit the two manufacturers but are detrimental to the retailer; (ii) in the entry strategy, when consumers are moderately inertial or the entrant is highly optimistic, the entrant will suffer from an incorrect entry decision and then has an unprofitable entry; (iii) in the pricing strategy, the incumbent manufacturer will set the normal wholesale price to blockade the entry if consumers have high inertia or the entrant has a low optimism; otherwise, he will set a new price to accommodate the entry. Furthermore, we discuss two different cases, finding that (iv) the existence of the retailer weakens the deterrent power of the incumbent manufacturer; and (v) the retailer will induce the manufacturer to accommodate the entry when the entrant is moderately optimistic.

Switching to profitable outside options under supplier encroachment

In practice, manufacturers may encroach on retail markets through a variety of methods, one being through the use of an online channel direct to the consumers, called encroachment. Current research typically assumes that downstream retailers retain procurement from the encroaching supplier. In reality, however, retailers may have the option of switching suppliers after encroachment. By considering a supply chain consisting of one manufacturer and one retailer with outside options, this paper analyzes the effects of the option of switching suppliers on the supply chain players' strategic interactions under the threat of supplier encroachment. We consider that the manufacturer makes encroachment decision preceding the retailer's switch decision. We capture various outcomes of the encroachment and switch decisions by using a classic encroachment model with quantity decisions (Cournot model). Specifically, we identify two effects of the outside option on the strategic encroachment decision. The first, the deterrence effect, means that the manufacturer's encroachment is deterred by the threat of switching supplies altogether; while the second, the permissive effect, indicates that the retailer intends to switch to the alternative source after the encroachment. Interestingly, we show that the encroachment could improve the total profit of the incumbent manufacturer and the retailer even when the retailer's switch has occurred. In this case, however, the manufacturer profits while the retailer is hurt by the encroachment and the switch. Finally, we also investigate several extended cases to demonstrate the robustness of our findings.

Supply chain’s green investment strategy to cope with an entrant threat considering differentiated competitiveness

Facing the strengthening of consumer environmental awareness, we investigate the green investment and green subsidy problem of an incumbent supply chain (ISC) taking into account whether the external manufacturer (EM) encroach. Green investment strategies are explored under three scenarios: no-green investment, ex-ante and ex-post green subsidies by the incumbent manufacturer (IM), and green investment by the supplier. The results show that market size does not influence supplier channel selection and investment decisions. The green investment strategy is significantly affected by investment cost efficiency. Meanwhile, contrary to expectation, the more the investment is, the more willing the incumbent supply chain is to invest. Moreover, under a single-channel format, the incumbent supply chain can’t always achieve Pareto equilibrium. However, in the presence of the supplier green investment, although each green investment scenario can improve the profit, it cannot realize Pareto equilibrium. In addition, when the dual-channel format is adopted, the local areas can achieve Pareto equilibrium under different scenarios. The supplier plays an important role as it holds a monopoly upstream in the supply chain. As a result, the supplier’s green investment generates excellent profit and consumer surplus; however, there will be fluctuations in the optimal strategy of the incumbent manufacturer.

Research on supply chain pricing decisions considering the advertising effect under market encroachment

Based on a Stackelberg game, this paper establishes supply chain models in which an incumbent manufacturer invests in advertising and the retailer invests in advertising when there is a new entrant manufacturer. By solving the model, the subgame perfect equilibrium under different conditions is obtained, and then the influences of the advertising coefficient and the degree of differentiation of two brands on the pricing decisions of supply chain members are investigated. The results show that: in the incumbent manufacturer advertising model, the wholesale prices and retail prices of the incumbent manufacturer and the encroaching manufacturer change as the advertising coefficient and the degree of differentiation of the two brands change. In the retailer’s advertising model, the wholesale prices, retail prices and profits of the incumbent manufacturer and the encroaching manufacturer are all higher than those of the benchmark model within the limited scope. Some valuable information could be provided for supply chain enterprises to develop collaborative strategies and promote supply chain management practices.

Evolving Towards Mobility-as-a-Service: Drivers and Consequences of Car Subscription Services

ABSTRACT: This study investigates the emergence of car subscription services as a new development in the area of Mobility-as-a-Service (MaaS). Our aim is to explore the drivers of the emergence of car subscription services, analyse its impact on the incumbent manufacturers, and investigate the impact of COVID-19. We adopt a qualitative approach based on in-depth, semi-structured interviews with managers of three car subscription service providers: a leading car manufacturer and two car subscription start-ups. We found three key behavioural and technological trends that drive the emergence and growth of car subscription services and highlighted the various opportunities and risks for the incumbent manufacturers.

Defending Home against Giants: Exclusive Dealing as a Survival Strategy for Local Firms*

We consider exclusive contracts a survival strategy for a local incumbent manufacturer facing a multinational manufacturer's entry. Although both manufacturers prefer to trade with an efficient local distributor, trading with inefficient competitive distributors is acceptable only to the entrant, because of the entrant's efficiency. Hence, such competitive distributors can be an outside option for the entrant. As the entrant becomes efficient, the outside option works effectively, implying that the entry does not considerably benefit the efficient local distributor. Thus, the local manufacturer is more likely to sign an anticompetitive exclusive contract with the efficient distributor as the entrant becomes efficient.

Flexible supply meets flexible demand: prosumer impact on strategic hydro operations

Ambitious climate packages promote the integration of variable renewable energy (VRE) and electrification of the economy. For the power sector, such a transformation means the emergence of so-called prosumers, i.e., agents that both consume and produce electricity. Due to their inflexible VRE output and flexible demand, prosumers will potentially add endogenous net sales with seasonal patterns to the power system. With its vast hydro reservoirs and ample transmission capacity, the Nordic region is seemingly well positioned to cope with such intermittent VRE output. However, the increased requirement for flexibility may be leveraged by incumbent producers to manipulate prices. Via a Nash-Cournot model with a representation of the Nordic region’s spatio-temporal features and reservoir volumes, we examine how hydro producers’ ability to manipulate electricity prices through temporal arbitrage is affected by (i) VRE-enabled prosumers and (ii) the latter plus a high CO_2 price. We find that hydro reservoirs could exploit prosumers’ patterns of net sales to conduct temporal arbitrage more effectively, viz., by targeting periods in which prosumers are net buyers (net sellers) to withhold (to “dump”) water. Meanwhile, a higher CO_2 price would further enhance hydro reservoirs’ market power because flexible price-taking thermal plants would be unable to ramp up production in order to counter such producers’ strategy to target VRE’s intermittency. Hence, in spite of a flexible demand side to complement additional intermittent VRE output, strategic hydro producers may still exacerbate price manipulation in a future power sector via more tailored exercise of market power.

Does Environmental Education Always Contribute to Remanufacturing Supply Chain Development?

Remanufacturing, as an effective way to save resources and alleviate environmental pollution, has gradually become a sustainable practice. Environmental education contributes to the development of remanufacturing by increasing the number of consumers willing to purchase remanufactured products (RPs). However, the incumbent manufacturer usually has limited remanufacturing capability together with yield uncertainty, making a third-party remanufacturer (3PR) an alternate channel choice. This study develops an analytical model to examine the effects of environmental education on a retailer's choice of remanufacturing channels under in-store competition. Results show that consumer environmental education has the potential to significantly improve the retailer and supply chain profits, and temperate environmental education is always desirable for 3PR. The introduction of 3PR benefits the consumer when the retailer's remanufacturing technology level is low. Furthermore, when the environmental impact of defective RPs is relatively high, and environmental education is temperate, selecting a 3PR will enhance environmental sustainability. This study also shows that 3PR can help achieve a win-win situation when environmental education and consumer acceptance of RPs are both in a certain range.

A study on selling intergenerational products under competition

This study considers an incumbent manufacturer that sells both new and old versions of products, and competes with a rival manufacturer that sells a similar competitive product in the market. It investigates the impact that both internal and external competition between these products has on the manufacturers’ pricing strategies. We assume that the transition period is the planning time for product sales, during which the old-version products would not be replenished if they are sold out. The contribution of this study is that the equilibrium prices at different moments for the incumbent and rival manufacturers are obtained by considering both the customer purchase probability and the diffusion model in predicting the demand for each product, with the aim of maximizing the expected profits of both manufacturers. Moreover, this study also considers the scenario in which the incumbent manufacturer uses the trade-in strategy of replacing the older-generation product with the newer version, and the rival manufacturer responds with the markdown strategy of periodically reducing the price. The results show that the price reduction of the rival manufacturer is inversely related to the price of the competitive product, the price gap between the competitive product and the newer product, and the inventory cost.

Strategic outsourcing decisions of new entrant and competing incumbent manufacturer in a supply chain with common supplier

<p style='text-indent:20px;'>We characterize outsourcing strategies and their interaction between the incumbent manufacturer and the new entrant in a supply chain with the common supplier. The incumbent manufacturer and the supplier can provide the critical components to the entrant, and we will investigate how the incumbent manufacturer competes with the new entrant and whether the common supplier can benefit from the new outsourcing. We find the incumbent benefits from the new entrant's outsourcing to a monopoly supplier, and it is rational and more profitable for the incumbent to cooperate with the new one. Then, we analyze the supplier's response to the incumbent's strategic behavior and reveal that a rational supplier would offer the incumbent a more favorable price. Counter-intuitively, the supplier may benefit if the entrant possesses more bargaining power.</p>

Supply chain operations with online platform: Impacts of online reviews and manufacturer competition

In an e-commerce market dominated by online platforms, as an important means of disseminating product information, online reviews play a significant role in influencing consumer-purchasing behavior. To study the influence of online reviews on supply chain decisions, this paper establishes a supply chain game composed of manufacturers and online platforms in a monopolistic market of manufacturers and a competitive market of manufacturers, respectively. In the monopolistic market of manufacturers, online reviews correct consumer-perceived quality. In the competitive market of manufacturers, online reviews correct consumer-perceived quality and then increase the level of competition between manufacturers. The results show that: (1) The influence of online reviews depends on the size of the value of online reviews. In the monopolistic market of manufacturers, the value of online reviews, if high enough, increases the profit and demand of the supply chain. On the other hand, a sufficiently small value of online reviews reduces the profit and demand of the supply chain. Whereas in the competitive market of manufacturers, online reviews change the level of competition. The manufacturer makes a profit only if the value of his online review is sufficiently higher than that of his competitor. For the online platform, online reviews will always increase her profit as long as the values of online reviews of both products are not too small at the same time. (2) Without online reviews, competition between manufacturers reduces the profit of the incumbent manufacturer. With online reviews, competition between manufacturers reduces the profit of the incumbent manufacturer while increasing the supply chain’s total profit and the online platform’s profit.

The political reception of innovations

AbstractWhy do some societies embrace innovative technologies, policies, and ideas, while others are slow to adopt, and some even resist, them? Incumbent producers are most likely to be affected by certain kinds of innovations; they also wield a disproportionate influence in the design of institutions and policies that encourage or limit their adoption. We show formally that the elite has four cardinal policy options: to appropriate the innovation for itself; to encourage its adoption; to tax, regulate, or limit the innovation; or to block it. We show that six features of an innovation determine how it is received: (i) whether it is easy to replicate; (ii) whether it complements or competes with the elite's sources of income; (iii) whether its impact is broad or narrow; (iv) whether it is location‐dependent, and (v) concealable; (vi) whether it requires large fixed costs. While other works have occasionally considered one of these factors, we show where each feature comes from, and we assess them systematically and together. We provide illustrative evidence of the relevance and generality of the model to understand the fate of a variety of innovations.

Evolving towards Mobility-as-a-service: Drivers and Consequences of Car Subscription Service (WITHDRAWN)

This study investigates the emergence of car subscription services, as a new development in the area of Mobility-as-a-Service (MaaS). Our aim is to explore the drivers of emergence of car subscription services, analyse its impact on the incumbent manufacturers, and investigate the impact of Covid-19. We adopt a qualitative approach based on in-depth, semi-structured interviews with managers of two car subscription service providers: a leading car manufacturer and an IT start-up. We found three key behavioural and technological trends that drive the emergence and growth of car subscription services and highlighted the various opportunities and risks for the incumbent manufacturers.

Origin versus Substance: Competing Determinants of Disruption in Duplication Technologies

AbstractContemporary developments in material duplication promise product alternatives that are physically and sensorially indistinguishable from incumbent offerings. When fully realized, such duplicate offerings should obsolete the incumbents as a consequence of wider availability and lower monetary and social costs. Disruption will be impeded, however, if consumers favor incumbent products on the basis of non-material qualities. The authors show that the influence of such qualities depends on both the product category and characteristics of the consumer. In particular, when a creator is central to the product and when the consumer is inclined toward extraordinary beliefs, the influence of origin looms especially large. By contrasting origin and substance, the present research exposes dualistic thinking in consumers’ product evaluations, enriches prior research on authenticity and extraordinary beliefs, and contributes to the stubborn problem of technology adoption.