Horizontal cooperation and information sharing between suppliers in the manufacturer-supplier triad

Abstract

In this paper, we analyse a collusion and information-sharing problem between two suppliers in a manufacturer-supplier triad. The manufacturer treats one supplier as a strategic supplier and the other as a backup. While the strategic supplier offers modules of good quality but longer lead times, the backup supplier offers modules with inferior quality but shorter lead times. If there are urgent orders, the manufacturer must turn to the backup supplier. However, it is difficult for the manufacturer to estimate whether the urgent supplier has put extra effort into their production. We formulate this problem by assuming that the urgent supplier has either low or high production costs. To take advantage of the competition between two suppliers, the manufacturer can design a contract menu that defines total payment and lead times, under which both suppliers may be worse off. Meanwhile, it is possible for the suppliers to tacitly form a coalition, and to even share the private cost information. We study this problem by formulating it as a three-stage game. Furthermore, we investigate the variation of profits for each part of the supply chain. We find that the manufacturer is worse off when suppliers cooperate or share private information. Both suppliers, however, can benefit from cooperation and information sharing.