Procurement model under suppliers´ capacity investments and competition

In this research, we consider a supply chain where two suppliers first compete to win a contract from a buyer. The supplies also have individual alternate markets to sell capacity. Production costs of suppliers are private information. The winner of the contract invests in capacity for the buyer as well as his alternate market. The other supplier only invests to serve his alternate market. We determine buyers´ optimal sourcing strategy and the supplier´s capacity decisions under such a scenario.