Production sourcing in a co-opetitive supply chain under transformative marketing recommendations

To better satisfy consumers’ increasing demand for more diverse products, original brand manufacturers (OBMs) in various industries tend to outsource manufacturing tasks to other manufacturers. Moreover, with the rapid advancement of technology, many online platforms have adopted transformative marketing recommendation systems to improve sales. This paper analyzes how transformative marketing recommendation affects an OBM’s optimal production sourcing strategy within a platform-based co-opetitive supply chain. The results show that when the market expansion effect of transformative marketing recommendation is not significantly more pronounced than the accompanying market decline effect is, an OBM might interestingly outsource manufacturing to a CM or an NCM even if the cost of self-production is very low. This finding contrasts with the conventional belief that an OBM should not choose outsourcing when the cost of self-production is low. We further identify the conditions under which the OBM’s optimal production sourcing strategy also maximises the competitive manufacturer’s (CM’s) profit, i.e., leading to a win–win outcome. We also identify the conditions under which an OBM might make a socially-optimal production sourcing decision. Specifically, we find that improvements in the overall effect of transformative marketing recommendation might not necessarily benefit total social welfare when they induce the OBM to switch from outsourcing to self-production before such a switch becomes socially desirable.