Competition and structure in serial supply chains with deterministic demand

Supply chains often consist of several tiers, with different numbers of fir ms competing at each tier. A major determinant of the structure of supply c hains is the cost structure associated with the underlying manufacturing pr ocess. In this paper, we examine the impact of fixed and variable costs on the structure and competitiveness of supply chains with a serial structure and price-sensitive linear deterministic demand. The entry stage is modeled as a simultaneous game, where the players take the outcomes of the subsequ ent post-entry (Cournot) competition into account in making their entry dec isions. We derive expressions for prices and production quantities as funct ions of the number of entrants at each tier of a multitier chain. We charac terize viability and stability of supply-chain structures and show, using l attice arguments, that there is always an equilibrium structure in pure str ategies in the entry game. Finally, we examine the effects of vertical inte gration in the two-tier case. Altogether, the paper provides a framework fo r comparing a variety of supply-chain structures and for studying how they are affected by cost structures and by the number of entrants throughout th e chain.