Manufacturer encroachment in car per-use rental: The role of partial integration of supply chain

An innovative non-ownership business model, per-use rental, has emerged, in which consumers use products through renting and pay based on usage frequency. Although existing literature examines manufacturer encroachment in decentralized supply chains, recent practices demonstrate increasing partial vertical integration via shareholding among members. This paper investigates a supply chain consisting an upstream manufacturer and a downstream per-use rental platform, analyzing the manufacturer’s encroachment strategies under three scenarios: no partial integration, partial forward integration (PFI), and partial backward integration (PBI). Some important findings and managerial insights are obtained. First, we find that different partial integration scenarios may bring different impacts on the manufacturer’s encroachment strategies. Under no partial integration and PFI, the manufacturer will encroach when the fixed investment cost of a direct per-use rental channel is low. However, under PBI, additional factors, such as the maintenance cost and platform’s shareholding ratio, also influence the equilibrium strategies. In each scenario, encroachment can result in win-win, win-lose, lose-win, and lose-lose outcomes for the manufacturer and the platform. Second, the manufacturer’s wholesale price decreases with the shareholding ratio under PFI but increases under PBI, reflecting the impact of equity ownership, and the platform’s rental price follows a similar trend. These conclusions suggest that members can adapt to the impact of different equity structures and encroachment by adjusting prices, and the platform with more equity is more likely to benefit from manufacturer encroachment. Finally, two extensions, including different maintenance costs borne by the manufacturer and the platform, and the validity of partial integration, are considered to further verify the robustness of the proposed models.