Partial vertical ownership and specific investment of the manufacturer under demand uncertainty: utilisation, risk, and collaboration

The rise of digital intelligence and the growing demand for personalised products have driven traditional manufacturers to transform through collaboration with platforms. In these collaborations, manufacturers make significant specific investments to meet platform requirements, which can lead to lock-in hazards. To mitigate such risks and stabilise long-term partnerships, many firms opt to acquire non-controlling partial vertical ownership (PVO) in other firms. This study develops a game-theoretic model of a platform-based production system to examine how PVO influences a manufacturer’s specific investment and the profit outcomes of both parties under demand uncertainty. Our analysis demonstrates that while PVO does not always lead to higher profits for both the manufacturer and the platform, it enhances the utilisation of specific investments and reduces the required investment levels. From a long-term perspective, the increasing number of repeated transactions further improves the effectiveness of specific investments in enhancing the overall supply chain profit. The results provide actionable implications for the design and management of platform-driven production systems undergoing digital and intelligent transformation.