Analysis of Dynamic Cournot Game in a Coopetition Supply Chain

Abstract

In the original manufacturing industry, upstream encroachment has become a universal commercial phenomenon. This paper considers a coopetition supply chain consisting of an upstream original design manufacturer (ODM) and a downstream original equipment manufacturer (OEM) and proposes a dynamic Cournot game under bounded rationality. To cope with a dynamic repeated game in discrete time, a gradient adjustment mechanism is adopted. Furthermore, bifurcation diagram, largest Lyapunov exponent, basin of attraction, and critical curve are introduced to investigate the dynamic behavior of this game. The results obtained show that as the firms' policy adjustment speeds increase, the stability region of the dynamic system gradually narrows, but one special finding is that the complex behavior of the dynamic system is alleviated as the OEM's adjustment speed greatly increases. Moreover, when the difference between the two firms' adjustment speeds is relatively small, the dynamic adjustment strategy is beneficial to the coopetition supply chain and both firms under certain adjustment speeds, as compared to a one-shot game. In addition, a higher product substitutability has a positive impact on the system stability, pushing the "cooperation"business alliance towards a more coordinated outcome.