Impact of Quality Investment and Vertical Shareholding in Hybrid Competing Supply Chains

Abstract

Product quality is a key factor affecting consumers’ willingness to buy, providing greater advantages to an enterprise than product price. This paper investigates the impact of two factors, price and quality, on the operational decisions of hybrid competing supply chains. Supply chain I, which consists of a manufacturer and a retailer, is a decentralized structure. Supply chain II, where the manufacturer and retailer are integrated, is a centralized structure. Quality investment and vertical shareholding are introduced into the decentralized supply chain. Models are constructed for three different scenarios, examining whether the manufacturer makes a quality investment and whether the retailer holds shares in the quality investment. By comparing the equilibrium results, solved by the Stackelberg game method, the following conclusions are drawn: (1) Quality investment and shareholding can enhance product quality and price. (2) The retail price in a centralized supply chain is consistently lower than that in a decentralized one, leading to generally higher total profits for centralized supply chain. (3) The total profit of the decentralized supply chain only exceeds that of the centralized ones when the degree of substitution between products is lower than 0.6285 and the quality effort cost factor is within a specific range. While centralized supply chain is generally more advantageous, decentralized supply chain can outperform him under specific conditions.