Utility Increasing or Efficiency Improving? Investment Strategies in a Supply Chain Considering Adaptability and Spillovers

An appropriate investment strategy is critical for a firm's survival and development. Increasing consumer utility and improving operational efficiency are two types of investments that are widely adopted in practice. In a supply chain, a member's choice may be affected by the other ones’ decisions. A firm should implement a proper investment strategy to maximize profit while considering other members’ actions. We investigate equilibrium investment strategies in a supply chain when facing two investment options,
utility increasing
and
efficiency improving
, considering organizational adaptability and spillover effect within the chain. Our analysis reveals that the manufacturer can make her investment plan according to the spillover effect of efficiency improvement and the marginal cost of utility increase, improving efficiency (increasing utility) if both are high (low), regardless of the retailer's choice. The retailer should choose the same strategy as the manufacturer if the two factors mentioned above are both either very low or high and a different strategy when they are moderate. Moreover, we further find that the risk-averse manufacturer (retailer) should invest more than the risk-neutral retailer (manufacturer) if members have excellent (poor) adaptability, and risk aversion can cluster their choices, making them prefer the same strategy.