The interaction of retailer’s investment strategy and supplier’s entry modes into the retail market

This paper considers the interaction between the retailer’s investment strategy and the mode by which the supplier enters the market in a two-echelon supply chain. The retailer who invests in upgrading the supplier’s production technology, may face a supplier entering the market through encroachment or holding shares. Our findings indicate that supplier encroachment curbs the retailer’s incentive to invest in technology upgrades. In contrast, the supplier holding the retailer’s shares enhances the retailer’s incentive to invest in technology upgrades. In particular, if the supplier chooses to hold shares in the retailer and the percentage of the retailer’s shares held by the supplier is small, a ‘win-win’ result can be achieved. Moreover, our study also reveals that the retailer’s investment strategy can impact the supplier’s entry mode. Without the retailer’s investment, the supplier prefers to enter the market through encroachment. However, when the retailer invests in upgrading the supplier’s production technology, we confirm that the supplier would choose to hold shares in the retailer under certain conditions. Finally, we further extend two single-entry modes to a mixed-entry mode in which the supplier enters the retail market by encroachment and holding the retailer’s shares simultaneously.