Effects of supply chain competition on firms’ product sustainability strategy

doi:10.1016/j.jclepro.2020.124061

Journal of Cleaner Production

Volume 275, 1 December 2020, 124061

https://doi.org/10.1016/j.jclepro.2020.124061 Get rights and content

Highlights

•
Effects of supply chain competition on firms’ product sustainability are studied.
•
Horizontal competition can increase product sustainability and supply chain performance.
•
Vertical competition may reduce product sustainability although it increases supply chain performance.
•
Product competition drives the supply chain system’s decisions on integrating the supply chain vertically or horizontally.

Abstract

The competition between supply chains becomes increasingly popular with the development of economic globalization. Sustainable development is an important issue and attracts considerable attention from industrial and academic communities, especially under the competitive environment, because of the huge and rapid assumption of natural resources and global warming. In this study, we consider a setting with two competitive supply chains, and each chain is consisted of an upstream firm and a downstream firm. The two downstream firms compete with each other only at the product sustainability level. Using a theoretical game model, we explore how supply chain competition affects firms’ strategy on product sustainability and profits by considering four cases in which the supply chains can be integrated either vertically or horizontally. Results show that the existence of horizontal competition, vertical competition, and competition between sustainable products play important roles in determining firms’ decisions. In particular, the existence of horizontal competition can stimulate firms to increase the level of product sustainability and improve the supply chain system’s profit under some conditions. However, the presence of vertical competition will stop firms from improving the product sustainability level but increase the performance of supply chain system under certain conditions. Depending on the degree of competition between sustainable products, the supply chain can strategically decide whether or not to integrate the system either vertically or horizontally.

Graphical abstract

Introduction

Sustainable development attracts much attention from industrial and academic communities. The improvement of product sustainability can shape a socially environmental image, thereby improving firm’s competitiveness. Firms in various industries (e.g., apparel, electronics, and personal computer) release their sustainability report where consumers can observe their sustainable operations about the implementation of reusable materials, ethical adoption, green innovation, and reduction of carbon emission. Thus, many consumers in the market will purchase sustainable products from such kind of firms. Many firms are investing much money and human resources in sustainable supply management. They collaborate with their suppliers and external experts to identify and implement actions that can make them sustainable. Thus, firms are increasingly aware of the importance of sustainable supply chain management and its meaning for their product sustainability strategy.

Firms face several challenges in their practical sustainable operations. In a supply chain system, a downstream firm may prefer to set a low level of product sustainability when its upstream suppliers charge a high price of the key component. A high price of the key component will result in a high cost and a low profitability of the sustainable operation for the downstream firm. The competition from competitors plays a vital role in affecting firms’ decisions of sustainable operations. To enlarge the market share of the sustainable product, the firm has to exert a high effort to improve the product sustainability level given that its competitor also implements sustainable operations.

Motivated by the above facts, we aim to understand the effects of internal and external competitions in a supply chain (i.e., vertical and horizontal competitions, respectively) on the firms’ product sustainable operations, demand, and the performance of supply chain system. In particular, this research mainly aims to address the following research questions.

1)
Given the presence or absence of horizontal competition in a system with two competitive supply chains, what are the effects of vertical competition on the firms’ product sustainable operations, demand in equilibrium, and the performance of the supply chain system? Under what conditions that vertical competition should be encouraged?
2)
When vertical competition (or not) exists in a system with two competitive supply chains, how horizontal competition affects the firms’ product sustainable operations, demand in equilibrium, and the performance of the supply chain system? When should horizontal competition be accepted?
3)
Given the structure of the supply chain system (i.e., integrated either vertically or horizontally), what is the effect of competition between sustainable products on firms’ product sustainable operations, demand in equilibrium, and performance of the supply chain system?

To answer these questions, this study considers a setting with two competitive supply chains, and each chain consists of an upstream firm and a downstream firm. The two downstream firms compete with each other at the product sustainability level. On the basis of game theory, we consider four cases where each supply chain can be integrated vertically or horizontally. We derive the optimal solutions of firms’ product sustainability decisions under all cases when the initial market scales of downstream firms are symmetric through theoretical analysis. We explore the effects of supply chain competition on firms’ product sustainability level, demand in equilibrium, and profits of the supply chain system. Comparisons and analyses regarding the effects of supply chain competition are implicitly conducted. We show that these conclusions can be reproduced when the initial market scales of downstream firms are asymmetric.

The main contributions of this research are threefold. First, this study is the first to explore how supply chain competition affects firms’ product sustainability decisions, demand in equilibrium, and the supply chain system’s performance. Second, under the case with symmetric initial market scales, we show that horizontal competition can stimulate firms to increase the product sustainability level and improve the performance of the supply chain system under some conditions. We also show that vertical competition helps improve the performance of the supply chain system, although it stops firms from increasing the product sustainability level. Finally, these results can be basically observed although the initial market scales are asymmetric.

The remainder of this paper is organized as follows. Section 2 provides a literature review to position the present research in the existing studies. Section 3 proposes four types of supply chain models. Section 4 derives the optimal solutions and analyzes the effects of supply chain competition under the symmetric case. Section 5 verifies the robustness of core conclusions under the asymmetric case. Section 6 discusses the results and obtains some managerial insights. Section 7 provides the conclusions and some future directions.

Section snippets

Literature review

This study is closely related to three streams of research, namely, product sustainability, sustainable supply chain management, and competition between firms or supply chains.

Model setup

We consider two supply chains where each one consists of one upstream firm and one downstream firm. In supply chain $i$ , upstream firm $i$ (as a Stackelberg game leader) sells the raw material to downstream firm $i$ (as a Stackelberg game follwer) for producing the new sustainable product $i$ that will be sold to consumers in the market. At the same time, the two downstream firms compete with each other at the product sustainability level.

Following Guo et al. (2020) and Li and Li (2016), we assume that

Symmetric initial market scale

This section examines the effects of supply chain structure on firms’ decisions and their profits. We can derive the firms’ optimal product sustainability level decisions under each case through backward induction. In particular, all results are presented in Lemma 1.

Lemma 1

When the initial market scales are symmetric, the firms’ optimal decisions and the supply chain’s total profit under different cases are summarized in Table 3.

Lemma 1 gives the optimal decisions and maximal profits under each case,

Asymmetric initial market scale

We explore the effects of supply chain competition on firms’ optimal product sustainability level decisions, the demand in equilibrium, and profits under the environment where the initial market scale is asymmetric, that is, $α_{1} \neq α_{2}$ . Similar to the symmetric setting, we first derive the optimal decisions under each case. At the same time, a superscript “ $¯$ ” is used to denote the decisions under the asymmetric case to differentiate the expressions from those under the symmetric case. In particular,

Discussion and managerial insights

In this paper, we have investigated how supply chain structure (including vertical and horizontal competitions) and the competition intensity between sustainable products affect firms’ product sustainability level decisions, demand in equilibrium, and the performance of the supply chain system under symmetric and asymmetric cases. According to Li and Li (2016) and Xie (2016), integration is always benefit to the supply chain system, however, our study finds some distinct results by

Conclusions

In this study, we consider two competitive supply chains where each chain competes with its counterpart on product sustainability. Each chain is consisted of an upstream firm and a downstream firm, and the upstream firm provides raw material to the upstream one who sells sustainable products to the market. We consider four cases where the supply chain system can be integrated either vertically or horizontally. On the basis of theoretical analysis under the symmetric and asymmetric settings, we

CRediT authorship contribution statement

Weisheng Deng: Conceptualization, Methodology, Validation, Formal analysis, Visualization, Investigation, Writing - original draft, Writing - review & editing. Lipan Feng: Conceptualization, Methodology, Data curation, Software, Formal analysis, Investigation, Writing - review & editing. Xiukun Zhao: Validation, Writing - review & editing, Supervision, Funding acquisition, Visualization, Writing - original draft, Writing - review & editing. Yaqi Lou: Writing - review & editing, Resources,

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Acknowledgements

We gratefully acknowledge the support of grants from the National Natural Science Foundation of China (71802143; 71702021), the Humanities and Social Sciences Research of the Ministry of Education of China (18YJC630260; 17YJC630113), the Project funded by China Postdoctoral Science Foundation (2020M670770), the Science Research Fund Project of Yunnan Provincial Department of Education (2020J021), the Research Project Funded by Asian Research Center in Nankai University (AS1702), and the

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View full text

Effects of supply chain competition on firms’ product sustainability strategy

Highlights

Abstract

Graphical abstract

Introduction

Section snippets

Literature review

Model setup

Symmetric initial market scale

Asymmetric initial market scale

Discussion and managerial insights

Conclusions

CRediT authorship contribution statement

Declaration of competing interest

Acknowledgements

Eur. J. Oper. Res.

J. Eng. Technol. Manag.

Int. J. Prod. Econ.

Eur. J. Oper. Res.

J. Clean. Prod.

J. Clean. Prod.

Resour. Conserv. Recycl.

J. Clean. Prod.

J. Bus. Res.

J. Clean. Prod.

J. Clean. Prod.

J. Oper. Manag.

J. Clean. Prod.

Int. J. Prod. Econ.

Eur. J. Oper. Res.

Supply chain competition with multiple manufacturers and retailers

Oper. Res.

The role of modular upgradability as a green design strategy

Manuf. Serv. Oper. Manag.

Contracting with demand uncertainty under supply chain competition

Ann. Oper. Res.

Double counting in supply chain carbon footprinting

Manuf. Serv. Oper. Manag.

Sustainable construction supply chains through synchronized production planning and control in engineer-to-order enterprises

Sustainability