The Strategy of Interaction of a Focused Firm with Supplier and Consumer in the Supply Chain

Abstract

The spread of globalization, and then the pandemic associated with COVID19, the beginning of ITS led to the need to revise the landscape of competition in national and global markets. The focus of researchers’ attention has shifted from the competitive interaction of individual firms to the rivalry between supply chains. Therefore, it is necessary to determine which structure of the supply chain is the most preferable for each of its participants. The article examines the economic behavior of a focus firm in relation to other participants in the supply chain. Three situations are analyzed. The first involves the fully autonomous functioning of all participants in the chain. The second is that the dominant firm integrates with the seller (integration forward), and the third – with the supplier (integration backward). The paper evaluates the strategies of a focus firm in the supply chain based on profit analysis. A formalized model is proposed that allows analyzing the incentives for the integration of a focus firm with other participants in various variants of the chain organization and assessing the conditions in which the supplier and the end seller will be motivated to cooperate. The value of the profit of the supplier and seller is also analyzed, representing the extreme links of the chain in the case when they will be more inclined to autonomous functioning. The methodological basis of the research is a combination of the paradigm of the theory of industrial markets, economic theory and supply chain management. The scientific novelty of the research is an original approach to considering the supply chain as a system focused on the market function of demand, i.e. the activities of all participants in the chain are configured to produce and sell such a volume of goods for which demand is presented. The supply chain is also considered from the perspective of optimizing its structure and motivating partners to cooperate based on an analysis of the profits of each participant. The proposed approach allows us to compare the results of the functioning of firms in the supply chain from the standpoint of the theory of industry markets and economic theory, which goes beyond logistics or strategic management.