Considering a supply chain consisting of one contract manufacturer(CM)and one original equipment manufacturer(OEM)with production outsourcing,this research studies the interaction between the CM's encroachment decision and the OEM's supplier development decision.This study builds game-theoretic models and derives equilibrium results by backward induction.This study shows:(1)when the efficiency of OEM's supplier development investment is relatively high,supplier development is an effective way to prevent contract manufacturer encroachment;(2)supplier development improves the profits of the CM and OEM regardless of the CM's encroachment decision;(3)the impacts of contract manufacturer encroachment decision and supplier development decision on profits could be either strengthened or neutralized;(4)when the substitution rate between products and the OEM's investment efficiency are low,the contract manufacturer encroachment and supplier development may achieve a win-win outcome for the CM and OEM.
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