Research on competitive strategy of dynamic supply chain with network effect

Abstract

The network effect gains demand-side economies of scale that have a significant impact on profit, price and demand in business. The paper presents a supply chain model with duopolistic competition in terms of decentralized and centralized decision making processes that consider the network effect. First, by establishing the differential equation of network size that is a function of the network investment, the paper presents the supply chain model with dynamic competition. Then, in order to maximize the supply chain profit, the optimal value of the optimal strategy is obtained by solving the differential game. The optimal value of the optimal policy about wholesale production, retail price and effort rate is obtained. In results, in the first stage of network cycle, the profits of supply chain system with centralized decision is lower than that with decentralized decision-making, but with the passage of time, the profits will be phased in over decentralized decision situation with the greater gap.

Keywords:

• Network effect
• differential equation
• supply chain
• decentralized decision-making

AMS SUBJECT CLASSIFICATION:

• 62P30

Acknowledgements

The authors thank the anonymous referees for their constructive suggestions. We appreciate the support provided for this paper by the National Natural Science Funds of China (Project Nos. 71001075 and 71071102); the Fundamental Research Funds for the Central Universities (skqy201112).

Notes

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the National Natural Science Funds of China [Project Nos. 71001075 and 71071102]; the Fundamental Research Funds for the Central Universities [skqy201112].