Vertically integrated producer when a rival is also a customer: impact of demand uncertainty

ABSTRACT

When a vertically integrated producer (VIP) is also a supplier of a component for its rival firm, it was found that the profit in a decentralized structure is higher for the VIP than the profit in a centralized structure under deterministic demand. In contrast, we found that firms’ ordering decisions under uncertain demand can reverse this findings and it is more likely to happen as demand variability increases.

KEYWORDS:

• Vertically integrated producer
• demand uncertainty
• organization structure
• competition

JEL CLASSIFICATION:

• L22
• M11

Disclosure statement

No potential conflict of interest was reported by the authors.