Supply Chain Quality Decisions with Reference Effect under Supplier Competition Environment

Abstract

Nowadays, in such a competitive business environment, under the pursuit of high quality and high standards, every enterprise has clearly realized that the quality of products is directly related to the interests of the enterprise, the development of the enterprise, and the survival of the enterprise. The idea that quality is life has long been deeply rooted in every enterprise. Based on the aforementioned reality, this paper first constructs a demand function affected by product quality, service quality, reference effect and quality competition, and studies the optimal product quality and service quality under centralized decision-making and decentralized decision-making. By comparing the decision values and profit difference between centralized decision making and decentralized decision making, a bilateral cost sharing contract is proposed, and its application scope is discussed. The major findings entail that the centralized decision-making mode of supply chain will be more conducive to improving service quality. However, it is not necessarily conducive to improving product quality, which depends on the marginal profits of competitors, since supply chain decision-makers are more willing to invest resources in products with high marginal profits, thereby improving product quality. The increase of reference effect is conducive to improving the quality of products and services, but it may also lead to higher production costs in the case of centralized decision-making. Therefore, when the reference effect is high, supply chain enterprises should adopt decentralized decision-making mode. Excessive competition is not conducive to improving the profits and increases internal friction among enterprises. Therefore, when the competition is fierce, enterprise alliance is a better choice. Finally, the bilateral cost sharing contract can coordinate the supply chain, that is to say, the system profit is equal to the profit of centralized decision-making. However, only when the supplier’s share rate meets certain conditions can the bilateral cost sharing contract achieve Pareto optimization, that is to say, when it is greater than the profit of the enterprise under decentralized decision-making.

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