Manufacturer encroachment with production cost reduction under asymmetric information

By Xiaojie Sun, Wansheng Tang, Jing Chen, Sa Li, Jianxiong Zhang. Transportation Research Part E: Logistics and Transportation Review, 2019

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This paper considers manufacturer encroachment with the cost reduction decision under either asymmetric or symmetric demand information. By solving a signaling game, we find that encroachment motivates the manufacturer to invest more in cost reduction if and only if the direct selling channel is relatively efficient. Furthermore, both members benefit from the cost reduction action without encroachment, while encroachment allows the manufacturer to monopolize all of the benefit. In addition, encroachment benefits the manufacturer when the direct selling cost is sufficiently low, while it benefits the retailer when this cost is sufficiently high. Finally, we obtain some insights into information management.

Subfields: Management Information Systems, Management Science and Operations Research, Marketing

View Paper: https://www.semanticscholar.org/paper/bad44789619df2346a1661008e11f89c4b18bfd4