The effect of common ownership among supply chain parties on decision-making and surplus with manufacturer encroachment

Abstract

In the financial economics field, several studies assess the effect of common ownership on the economic consequence, decision-making of firms, and social performance. In this situation, based on recent supply chain practices and manufacturer encroachment, we examine the effect of common ownership on supply chain parties composed of a retailer and a manufacturer and social performance. From our model analysis, we demonstrate that manufacturer encroachment improves the retailer’s profit under specific economic environments, while generally, manufacturer encroachment harms the retailer’s profit because the manufacturer obtains market share through a direct channel. Additionally, we demonstrate that increasing common ownership improves total surplus in a specific case. Therefore, our analysis does not only propose the positive effects of common ownership among all vertical supply chain parties for supply chain coordination, as opposed to what is indicated by the real world, but also implies that society should accommodate common ownership among supply chain parties in specific economic environments from the perspective of total surplus.