Two Subcontracting Systems and Competitive Advantage | BenthamScience

Firms` Strategic Decisions Theoretical and Empirical Findings

Volume: 1

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This eBook presents recent case studies on firms and their strategy employed in specific scenarios and industries. Readers will find, in this volume, an analysis of oligopolistic industries done by ...
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Two Subcontracting Systems and Competitive Advantage

Pp. 3-25 (23)

Dong Joon Lee, Tatsuhiko Nariu and Tatsuya Kikutani

Abstract

This chapter compares two subcontracting systems in a three-stage duopoly model. An American-typed assembler such as GM generally produces an input internally, while a Japanese-typed assembler such as Toyota purchases it from its affiliated (Keiretsu) supplier. The American-typed assembler has the advantage of investment incentive, but has the disadvantage of the input price management. On the other hand, the Japanese-typed assembler has the advantage of the input price adjustment, but has the disadvantage of providing investment incentive for the affiliated supplier. Our results are as follows: if the Japanese assembler can support its affiliated supplier prior to purchasing the input, the support enables the assembler to purchase the input at a low price. As a result, the assembler has a competitive advantage in the final product market.

Keywords:

American-typed assembler, competitive advantages, Cournot oligopoly, homogeneous final product, intermediate good, internal procurement, keiretsu (= affiliated) procurement, Japanese-typed assembler, subgame perfect equilibrium, three-stage model.

Affiliation:

Faculty of Management, Nagoya University of Commerce and Business, 4-4 Sagamine Komenoki-cho Nisshin-shi, Aichi 470-0193, Japan.