Supplier encroachment in competitive supply chains

With the development of e-commerce, wholesale suppliers have opportunities to establish their own direct channels, competing with their retailing channels. It is often referred to as supplier encroachment. While many papers have analyzed encroachment of a monopolistic supplier, none of them study supplier encroachment in competitive supply chains. We first study the case with two non-identical supply chains, and then analyze the case with multiple identical supply chains. We show that, in both cases, the number of the encroaching suppliers in equilibrium decreases monotonically as the operational disadvantages of the suppliers become more significant. We find that there may exist the prisoner׳s dilemma phenomenon for the suppliers. Furthermore, encroachment may lead to the “lose-lose” outcome for the suppliers and the retailers. We also explore the efficiency of the suppliers, the retailers and the whole system under encroachment relative to the non-encroachment situation.