A Game-Theoretic Model to Analyze Value Creation with Simultaneous Cooperation and Competition of Supply Chain Partners

Abstract

There is a rising trend in supplying chain management to employ simultaneous cooperation and competition (coopetition) among supply chain partners as an efficient strategy to create value. There exist, however, few models which analyze coopetitive situations mathematically. Cooperative game theory is the common tool in analyzing cooperative situations. However, the term “cooperative” in “cooperative game theory” is absolutely misleading since it ultimately leads to competition analysis and ignores the internal structure of the cooperation. Coopetition, however, results in structural transformations in players. Therefore, we require a mathematical modeling approach which takes into account the internal structural changes due to cooperation among competitors. In so doing, in this paper we propose, we assume that those parameters of each firm’s profit function are subject to transformation by cooperation as a function of cooperation level so as to determine the right level of cooperation and production of firms while considering technical cooperation between them. Furthermore, we demonstrate the results of applying the idea to a supply chain situation where two similar suppliers participate. We conclude that under intuitive conditions coopetition strategy is superior to the pure competitive relationship between the suppliers in terms of profitability which validates the previous empirical results mathematically.

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“…Jalowiecki et al, (2014) have inferred that demand for advanced agricultural products is increasing year on year due to its value addition abilities to its target end users. Apart from this, many new applications have emerged due to commercialization of the manufacturing techniques of agribusiness sector (Kafi and Ghomi, 2014). Agribusiness sector has huge potential in the future, as it would create a range of applications, namely in industries such as food processing sector, animal husbandry, plant enculturement among others (EFSA, 2011; Kuan and Ye-Found, 2012;Duran and Marcato, 2013).…”

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“…Kafi and Fatemi Ghomi (2014) claim coopetition leads to a structural transformation of the participating parties. In fact, they say partners have to determine an appropriate level of cooperation so this type of interaction does not backfire.…”

“…Although coopetition is repeatedly discussed in the literature for its value-creating nature (Brandenburger & Nalebuff, 1996), recent critics say scant attention is paid to the entrepreneurial sector (Kafi & Fatemi Ghomi, 2014). Most scholarly pieces about it are devoted to horizontal rather than vertical relationships between competitors.…”

“…However, evidence shows collaborative and competitive behaviours are highly correlated (Mariani, 2007;Solitander & Tidström, 2010). The increasing usage of coopetition as a practical business strategy rationalises the need for further exploration in the literature to learn how to tailor it (Kafi & Fatemi Ghomi, 2014) for success due to its multidimensional character and potential, again especially in light of the partnerships that social enterprises engage in with stakeholders.…”

“…Additionally, empirical studies about small-to medium-sized instances of coopetition not only demonstrate it is still in its infancy (Kafi & Fatemi Ghomi, 2014), but nothing appears to be directed at social enterprises and little is written on cases in this region.…”