When and how to introduce upstream competition in an innovation supply chain

Considering an innovation supply chain with a primary supplier involvement in the new product development of a downstream manufacturer who sells to consumers, we address when and how to introduce a secondary supplier by applying order commitment besides innovation quality-dependent contract and revenue-sharing contract. Our results show that the secondary supplier should be invited after the new product development is achieved. The innovation quality-dependent order commitment contract can improve the innovation quality of the supply chain. The innovation quality-dependent wholesale price contract warrants the supplier's innovation quality to keep the same level as the single-supplier supply chain and improves the primary supplier's profit. The incentive effect of a revenue-sharing contract on the supplier's innovation quality is more substantial when introducing a secondary supplier after new product development than before. Furthermore, the negative effect of the supplier's competition on innovation quality and profit of the manufacturer can be alleviated by wholesale price decision making power consignment. We also provide rich managerial insights into supplier involvement in new product development practices by analyzing the equilibrium behaviors and numerically simulating significant decision variables concerning the demand sensitivity to innovation quality.