The Impact Of Supplier Encroachment On Operational Decisions In A Supply Chain Under Revenue Sharing

With the rapid development of E-commerce and the growth of customer's acceptance of a direct channel,upstream suppliers might introduce their own direct channels along with third-party resellers/retailers,thereby competing with their resellers in the retail market.Such competition is often referred to as “supplier encroachment” in the literature.In this dissertation,we focus on the supplier encroachment issue,and attempt to explore the impact of revenue sharing contract,one of the most commonly used contracts in practice and the literature,on the supplier's incentive to open a direct channel,and thus its effect on the players' decisions.This dissertation consists of six chapters.Chapter 1 introduces the background,the importance,the main contents and innovation points of this dissertation.Chapter 2 reviews the related literature.In Chapter 3,we explore the impact of nonlinear pricing(NP)on supplier encroachment in a supply chain system,consisting of a retailer(he)and a supplier(she),who can sell through the retailer,or her direct channel,or both.The firms bilaterally negotiate over NP contract and the two channels' products are imperfect substitutes.To better align their behaviors,they can implement revenue-sharing(RS)to share the retailer's sales revenue.Our analysis shows that when compared with the first-best level,NP coupled with RS increases the supplier's incentive to encroach and coordinates the chain under encroachment.Surprisingly,further increase of the supplier's direct selling cost and product substitution degree can benefit both firms.Besides,under encroachment,RS boosts the retailer's output and reduces the direct channel's output,while it raises both firms' profits and limits the supplier's incentive to encroach.Contrary to the prior researches,supplier encroachment always hurts the retailer,but its impact on the supplier depends on the supplier's bargaining power and selling cost.Further,an inactive direct channel raises the retailer's output but harms him,whereas it benefits a less powerful supplier but harms a more powerful supplier with a subtle retail disadvantage,and it reduces the system's profit.Finally,the supplier's ability to encroach always increases consumer surplus when her retail disadvantage is slight,even when an inactive direct channel is introduced.What's more,our main results are robust even after altering some assumptions in the basic model,that is,our main results are still hold even when consumers regard the retailer's products as superior to those of the supplier selling directly,or when the supplier can credibly precommit to her own output quantity sold directly before the negotiation.In Chapter 4,we investigate the effect of retailer-driven revenue-sharing on supplier encroachment in a supply chain,which consists of a retailer(he)and a supplier(she),who can sell through the retailer,or her direct channel,or both.The two channels' products are perfect substitutes.To better align their incentives,the retailer can move first to share his revenue with his supplier,then they trade through a wholesale price contract.Our equilibrium analysis suggests that the retailer will not share his revenue with a supplier without the ability to encroach.Besides,so long as the supplier has a retail disadvantage,she will always sell through the retailer,even when the retailer does not share the revenue with her.Further,the retailer will share his revenue with the supplier to induce her to sell nothing directly when the supplier's direct selling cost is not too high,which can secure Pareto improvements.Surprisingly,further increase in the supplier's selling cost can benefit the supply chain when the cost is medium.Furthermore,the supplier's threat of selling directly can increase consumer surplus and the system's profit.However,retailer-driven revenue-sharing coordinates the chain only when the selling cost equals a certain value.What's more,our main results are still hold even when the two firms bilaterally negotiate over the wholesale price,or when they place orders simultaneously,or when the supplier orders first.In Chapter 5,we extend Chapter 4 to incorporate imperfect substitutes.Similarly,the retailer can move first to share his revenue with his supplier to better align their incentives,then they trade through a wholesale price contract.Our analytical results reveal revenuesharing increases the retailer's output and reduces the direct channel's output,but it limits the supplier's incentive to encroach and fails to coordinate the supply chain.Besides,retailer-driven revenue-sharing heartens the supplier sells directly when product substitution degree is low or when the supplier's selling cost is small,it induces the supplier to sells nothing directly otherwise.Surprisingly,further increase in the supplier's selling cost can benefit the supplier and the system when the cost is small.Further,we confirm that supplier encroachment or threat to encroach secures Pareto improvements when product substitution degree is low and the supplier's selling cost is not too small.Finally,supplier encroachment or threat to encroach can always raise the system's output,and then increase consumer surplus and the system's profit.Finally,we summarize our main insights,limitations and point out the future research directions in Chapter 6.Our innovative points mainly lie in the following three aspects.(1)We analyze the effect of revenue sharing on the supplier's incentive for encroachment and the firms' decisions and thus their profits when they bilaterally negotiate over nonlinear pricing contract,and show that supplier encroachment or threat to encroach can always hurt the retailer,but its effect on the supplier depends upon the supplier's bargaining power and direct selling cost.Further,NP coupled with RS can perfectly coordinate the supply chain.Most of the previous research indicates that supplier encroachment may benefit the incumbent retailers,but the above results are contrary to the prior research.Besides,our analysis also shows that RS boosts the retailer's output and reduces the direct channel's output,while it raises both firms' profits and limits the supplier's incentive to encroach.Further,when compared with the first-best level,NP coupled with RS increases the supplier's incentive to encroach.Surprisingly,further increase of the supplier's direct selling cost and product substitution degree can benefit both firms.Furthermore,the supplier's ability to encroach always increases consumer surplus when her retail disadvantage is slight.Finally,our main results are robust even after altering some assumptions in the basic model.(2)We explore the impact of retailer-driven revenue sharing on the supplier's incentive for encroachment and the firms' decisions and thus their profits with perfect substitutes,and find that the retailer will always share his revenue with the supplier to induce her to sell nothing directly,which can secure Pareto improvements when the supplier's direct selling cost is not too high.Most of the existing research seeks to understand the effect of supplier encroachment on the current supply chain setting,but does not consider the retailer's active coping strategies.Thus,the above finding provides an important reference for the retailer to vigorously cope with supplier encroachment.Besides,our analysis also suggests that the retailer will not share his revenue with a supplier without the ability to encroach,and the supplier always sell through the retailer so long as she has a retail disadvantage,even when the retailer does not share the revenue with her.Surprisingly,further increase in the supplier's selling cost can benefit the supply chain system when the cost is medium.Furthermore,the supplier's threat of selling directly can increase consumer surplus and the system's profit.However,retailer-driven revenue-sharing coordinates the supply chain only when the selling cost is fixed as a certain value.Finally,our main results are still hold even when the two firms bilaterally negotiate over the wholesale price,or when they place orders simultaneously,or when the supplier orders first.(3)We study the impact of retailer-driven revenue sharing on the supplier's incentive for encroachment and the firms' decisions and thus their profits with imperfect substitutes,and establish that retailer-driven revenue-sharing heartens the supplier sells directly when product substitution degree is low or when the supplier's selling cost is small,it induces the supplier to sells nothing directly otherwise,and supplier encroachment or threat to encroach can secure Pareto improvements.Most of the existing research assumes that the products selling through the direct and indirect channels are imperfect substitutes.But some consumers might particularly appreciate the convenience of in-home shopping offered by a supplier's online store,while others may have a strong bias towards personal touch delivered by a brick-and-mortar retailer.Besides,they do not consider the retailer's active coping strategies about supplier encroachment.Therefore,our findings provide valuable insights for the retailer to actively cope with supplier encroachment.Besides,our analysis also implies that revenue-sharing increases the retailer's output and reduces the direct channel's output,but it limits the supplier's incentive to encroach and fails to coordinate the supply chain.Surprisingly,further increase in the supplier's selling cost can benefit the supplier and the system when the cost is small.Finally,supplier encroachment or threat to encroach can always raise the system's output,and then increase consumer surplus and the system's profit.