Profit Seeking vs. Survival Seeking: An Analytical Study of Supplier's Behavior and Buyer's Subsidy Strategy

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Abstract

Supplier default is common in emerging markets. Suppliers under the threat of default have different objectives from profit-seeking companies. This paper analytically tests how profit-seeking or survival-seeking behavior, single-period or two-period consideration, and buyer's subsidy influence the supplier's and buyer's final utilities. The results show that under single-period consideration, the supplier's survival-seeking strategy in fact drives more start-ups or small suppliers out of business when the competition becomes severe; under two-period consideration, no matter which strategy (profit-seeking or survival-seeking) the supplier selects, the second-period price and profit are always higher than those of the first period. Furthermore, we find that providing subsidy is an effective way for buyer to keep suppliers’ competition at a certain level on the behalf of buyer's interest. By numerically estimating the benefits associated with the cost of subsidy, we provide a basis for understanding the cost–benefit analysis of buyer's subsidy strategy.

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