This chapter compares two subcontracting systems in a three-stage duopoly
model. An American-typed assembler such as GM generally produces an input
internally, while a Japanese-typed assembler such as Toyota purchases it from its
affiliated (Keiretsu) supplier. The American-typed assembler has the advantage of
investment incentive, but has the disadvantage of the input price management. On the
other hand, the Japanese-typed assembler has the advantage of the input price
adjustment, but has the disadvantage of providing investment incentive for the affiliated
supplier. Our results are as follows: if the Japanese assembler can support its affiliated
supplier prior to purchasing the input, the support enables the assembler to purchase the
input at a low price. As a result, the assembler has a competitive advantage in the final
product market.
Keywords: American-typed assembler, competitive advantages, Cournot
oligopoly, homogeneous final product, intermediate good, internal procurement,
keiretsu (= affiliated) procurement, Japanese-typed assembler, subgame perfect
equilibrium, three-stage model.
