Dual sourcing under supply disruption with risk-averse suppliers in the sharing economy

Abstract

Giant retailers sell their store brands and (re)sell substitute national brands for manufacturers (suppliers) simultaneously, which becomes an important sourcing and selling supply chain strategy in the sharing economy era. In this paper, we develop a game-theoretic model to examine the impact of risk-averse suppliers on dual sourcing decisions under supply disruption when two substitute products are sold in a common market. We examine the impact of risk-aversion, demand volatility, and supply disruption on the supply chain profitability and pricing policies. We hypothesise and then analytically derive several propositions on the dependencies of the profitability and risk-aversion, demand volatility and pricing, and risk-aversion and pricing. We also conduct numerical analysis to explore the impact of disruption. We offer insights for managers and researchers alike by uncovering the role of supplier risk-aversion for decision-making settings with substitute products and dual sourcing when product supply may be disrupted.

Keywords:

• supply disruption
• pricing
• risk-aversion
• game theory
• supply chain management

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCID

Varun Gupta  http://orcid.org/0000-0002-0714-0298

Dmitry Ivanov  http://orcid.org/0000-0003-4932-9627

Notes

1 For random variable X, $\mathrm{S}\mathrm{D}\left(X\right)=\sqrt{\mathrm{E}\left[\right(X-\mathrm{E}\left[X\right]{)}^2]}$.