Pricing and Benefit of Decentralization for Competing Supply Chains With Fixed Costs

Tiaojun Xiao, Tsan Ming Choi, Edwin Tai Chiu Cheng

Research output: Journal article publicationJournal articleAcademic researchpeer-review

13 Citations (Scopus)


This paper develops two duopoly game models to explore price decisions and the channel benefit of decentralization for two supply chains, and investigates the channel structure decisions in the presence of fixed marketing and manufacturing costs. We give the price decisions and discuss price distortion. Under the downward decentralization model, our analysis reveals that first, symmetric decentralization improves supply chain profit only when the fixed marketing costs are high or product substitutability is high; second, decentralization improves channel profit, and symmetric decentralization (i.e., both manufacturers use decentralization) is an equilibrium if the fixed marketing (or unit production) costs are sufficiently high and the market scales are sufficiently small; and third, the presence of fixed marketing costs and asymmetry of supply chains support the existence of asymmetric equilibrium. Under the upward decentralization model, we find that symmetric outsourcing emerges when the fixed manufacturing cost or the unit production cost is low while both market scale and product substitutability are large in the supplier-led setting, the channel profit under downward decentralization is higher than that under symmetric outsourcing only if product substitutability is high, and the sourcing strategy largely depends on the specific game sequence.
Original languageEnglish
Article number8169060
Pages (from-to)99-112
Number of pages14
JournalIEEE Transactions on Engineering Management
Issue number1
Publication statusPublished - 1 Feb 2018


  • Channel structure
  • decentralization
  • game theory
  • pricing

ASJC Scopus subject areas

  • Strategy and Management
  • Electrical and Electronic Engineering


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