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In-house or Outsourcing R&D? Manufacturer Technology Strategy in the Presence of Market Follower Encroachment

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Abstract

Facing the threat of market follower encroachment, this paper constructs game theoretical models based on different channel structures and market structures, investigates following manufacturer’s encroachment strategy and technology strategies, and discusses the impact of following manufacturer’s strategy on quality decisions. The results show that encroachment always improves consumer surplus by slashing prices when leading manufacturer adopts in-house R&D (IRD); otherwise, it results in lower consumer surplus with mild competition if leading manufacturer is at a technological disadvantage. Furthermore, the technology strategies of following manufacturer are related to their R&D capabilities. The superior one is outsourcing R&D (ORD) for the manufacturers when their R&D capability is weak, otherwise, IRD is optimal. In a word, the leading manufacturer always prefers IRD under certain conditions, while the following manufacturer always prefers ORD. In addition, encroachment restrains quality innovative motivation under fixed or quality-sensitive R&D costs, but can improve quality level when consumers have a higher reference dependency for quality; meanwhile, the following manufacturer adopting ORD is always beneficial to quality improvement.

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Acknowledgments

The authors would like to express their gratitude to the editors and the anonymous reviewers for their encouraging comments and insightful suggestions, which substantially improved the quality of this paper. This work was supported by the National Natural Science Foundation of China under Grant No. 71771044.

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Authors and Affiliations

  1. School of Business Administration, Northeastern University, Shenyang, 110167, China

    Chunyu Li, Cuihua Zhang, Yanting Li & Ruxia Lv

Authors
  1. Chunyu Li
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  2. Cuihua Zhang
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  3. Yanting Li
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  4. Ruxia Lv
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Corresponding author

Correspondence to Cuihua Zhang.

Additional information

Chunyu Li is a PhD student of School of Business Administration at Northeastern University, Shenyang, China. She received the B.S. and M.S. degrees from Northeastern University, Shenyang, China, in 2013 and 2015, respectively. Her research interests include supply chain optimization and quality improvement.

Cuihua Zhang is a professor at Northeastern University, Shenyang, China. Her current research interests include behavioral and service operations management, supply chain quality control. She has published academic papers in many journals, such as International Journal of Operational Research, Computers & Industrial Engineering, Journal of Cleaner Production, Journal of Systems Science and Information.

Yanting Li is currently working towards the Ph.D. degree in management science and engineering at Northeastern University, Shenyang, China. Her research results have been published in the Computers & Industrial Engineering. Her major research interests include logistics and supply chain management, and decision-making optimization.

Ruxia Lv is currently working towards the Ph.D. degree in management science and engineering at Northeastern University, Shenyang, China. Her research results have been published in the Journal of Cleaner Production. Her research interest is green supply chain management and government regulations.

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Li, C., Zhang, C., Li, Y. et al. In-house or Outsourcing R&D? Manufacturer Technology Strategy in the Presence of Market Follower Encroachment. J. Syst. Sci. Syst. Eng. 31, 64–88 (2022). https://doi.org/10.1007/s11518-021-5513-5

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  • DOI: https://doi.org/10.1007/s11518-021-5513-5

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