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| Equilibrium Decisions of Product Price and Quality under Supply Risk |
| XU He1 PENG Weizhen2 |
| 1. Guizhou University of Finance and Economics, Guiyang, China；2.Huazhong University of Science and Technology, Wuhan, China |
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Abstract This study investigates the effect of different sourcing strategies (single or dual sourcing) on manufactures’ horizontal and vertical competition. Based on the utility function comprising the Hotelling model and quality, we establish a two-dimensional differentiation model with two competing manufacturers, and find the pricing and quality strategies of each manufacturer in equilibrium as well as the conditions under which the equilibrium uniquely exists. The result shows that the pricing and quality strategies depend on quality cost of the product; compared with the manufacturer who adopts single-sourcing strategy, the manufacturer who adopts dual-sourcing strategy will choose lower price and quality if quality cost is relatively small, otherwise will choose higher price and quality. Moreover, through a numerical examination, we observe that adopting dual-sourcing strategy can intensify the competition between two manufacturers if quality cost is relatively small, and can mitigate this competition if quality cost is relatively large. Hence, manufacturers will benefit more from dual-sourcing strategy when quality cost is relatively large.
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Received: 28 January 2016
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2016, Vol. 13 
