This paper aims to examine the optimal sourcing strategies and pricing decisions of competing toy manufacturers and to discuss how manufacturers’ decisions are impacted by competition.
The authors consider a single-period model to characterise the competition between two competing toy manufacturers. Both of them are free to choose between virgin material and recycled material. The authors consider two types of consumers: sensitive consumers who are concerned about product safety and prefer the toy made of virgin material and insensitive consumers who do not care what material is used in the toy. The competing manufacturers play a Cournot competition.
The results reveal a special case of a win-win situation for both the manufacturer and the consumer. In addition, an increasing number of sensitive consumers does not always raise the price of virgin-material toys.
The authors derive the manufacturer’s equilibrium sourcing strategies, corresponding market-clearing prices and profits obtained.
The paper investigates how toy manufacturers’ optimal sourcing strategies are impacted by competition, considering market segments.
