Gurkirat Wadhwa, Veeraruna Kavitha
arXiv 24 Jul 2026 · Econometrics
arXiv:2607.22846 · PDF · Extracted main text
Suppliers often encroach downstream by operating in-house production-units while continuing to supply independent production-units. We study the optimal configuration, including optimal pricing, for an encroaching supplier that balances these dual roles through a Stackelberg game. The integrated supplier determines the wholesale price charged to the outsourced production unit and the retail price of its own product, while the outsourced unit responds optimally. Customer demand-response incorporates both price-based substitutions (of the two production-units) and loyalty (towards individual units). With strong customer loyalty and luxury products, at the optimal choice for the coalition, both units co-exist profitably. In contrast, when the products become essential, the optimal strategy depends upon customer-fallback rates (fraction of the exiting production-unit's market that falls-back to other). Under low fallback, the coalition either sustains co-existence at maximum prices or disciplines the out-house to operate at break-even---with high fallback it is optimal to shut-down the in-house or eliminate the out-house---we derive two factors that identify the above. We further develop a numerical procedure to identify the optimal regime for any given set of parameters. Two surprising results are---higher market potential of the out-house can become a reason for it to operate at break-even---and the coalition may find it beneficial to operate its in-house at losses, particularly for products that are neither highly essential nor in the luxury category.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Wadhwa, Gurkirat and Walunj, Tushar Shankar and Kavitha, Veeraruna Partition-Form Cooperative Games in Two-Echelon Supply Chains self | 1.000 | 12 | 3 | 100% |
| 2 | Zheng, Xiao-Xue and Li, Deng-Feng and Liu, Zhi and Jia, Fu and Lev,… (2021) Willingness-to-cede behaviour in sustainable supply chain coordination | 0.737 | 3 | 2 | 100% |
| 3 | Wadhwa, Gurkirat and Kavitha, Veeraruna (2025) What should the encroaching supplier do in markets with some loyal customers? A Stackelberg Game Approach self | 0.644 | 4 | 1 | 100% |
| 4 | Simchi-Levi, David and Kaminsky, Philip and Simchi-Levi, Edith (1999) Designing and managing the supply chain: Concepts, strategies, and cases | 0.585 | 3 | 1 | 100% |
| 5 | Arya, Anil and Mittendorf, Brian and Sappington, David EM (2007) The bright side of supplier encroachment | 0.511 | 2 | 1 | 100% |
| 6 | Ha, Albert Y and Luo, Huajiang and Shang, Weixin (2022) Supplier encroachment, information sharing, and channel structure in online retail platforms | 0.511 | 2 | 1 | 100% |
| 7 | Ursino, Giovanni (2015) Supply chain control: a theory of vertical integration | 0.511 | 2 | 1 | 100% |
| 8 | Arora, Kashish and Singh, Amandeep and Sahare, Mamta (2025) Vertical integration and market power in supply networks | 0.405 | 1 | 1 | 100% |
| 9 | Chiang, Wei-yu Kevin and Chhajed, Dilip and Hess, James D (2003) Direct marketing, indirect profits: A strategic analysis of dual-channel supply-chain design | 0.405 | 1 | 1 | 100% |
| 10 | Das, Rubi and Barman, Abhijit and De, Pijus Kanti (2022) Integration of pricing and inventory decisions of deteriorating item in a decentralized supply chain: a Stackelberg-game approach | 0.405 | 1 | 1 | 100% |
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