Effects of in-house production on channel structures in a co-opetitive supply chain under supply uncertainty

In a co-opetitive supply chain, an upstream contract manufacturer (CM) is more likely to not only supply specified products to an original equipment manufacturer (OEM) but also to directly compete with the OEM by offering customers substitutable products. Further, when supply uncertainty is involved, the OEM will face not only more fierce competition in the downstream market but also more unreliable delivery of components. Thus, in a co-opetitive supply chain, this paper assumes that the OEM adopts in-house production when outsourcing products from the CM with supply uncertainty. Specifically, in this paper, the CM’s effective production cost is firstly defined to quantify impacts of supply uncertainty on the equilibrium of channel structures. Based on this, the insourcing effect is proposed firstly to measure the incentive for the OEM to adopt in-house production, and the marketing gap effect is firstly proposed to indicate when the CM adopts direct selling. Further, under joint influences of these effects, equilibriums of channel structures of a co-opetitive supply chain can be correctly proven. Additionally, several extensions are involved to indicate that the OEM is still able to adopt in-house production even the CM can assume termination or the second-mover advantage.