Technology Specifications and Production Timing in a Co-Opetitive Supply Chain

Motivated by Google's technology specifications on Android devices, we consider firms' decisions on production timing in a co-opetitive supply chain comprising a manufacturer and an original equipment manufacturer (OEM), where the manufacturer acts as the OEM's upstream contract manufacturer and downstream competitor. We consider the market acceptance uncertainty of key product designs. If a firm decides to implement ex post production strategy (PS), it can delay the production until the market acceptance uncertainty of its product is resolved. Otherwise, ex-ante production strategy (AS) is implemented. We find that, due to the co-opetition, PS does not always benefit either the manufacturer or the OEM, because the value of delayed production is diminished as the competitor may commit a production quantity earlier under AS. Further, firms' decisions on production timing are dependent on the degree of market acceptance uncertainty of their products and competition intensity. We find that both firms choose PS when uncertainty is high, while only one of them chooses PS when uncertainty is moderate or low. Interestingly, when the competition is intense, the manufacturer tends to choose PS, which can benefit from both the resolved market acceptance uncertainty and OEM's early commitment of production quantity.