Abstract: With the globalization of supply chain, the competition between supply chains become more and more intense, cooperation among enterprises in supply chain are more closely. In practice, there have been many companies directly investing in its suppliers to encourage suppliers to improve their supply performance. Decision-making of the game between two suppliers and a buyer with the buyer investing in suppliers is considered in this paper. A general situation is considered in this paper that the suppliers are heterogeneous, namely that the two suppliers are different in supply stability, production cost and the improvement effect of investment. A three-stage game model is established in this paper. At the first stage, the buyer determines investment assignment for the two suppliers. At the second stage, after receiving the buyer's investment and improve supply process, the suppliers determine their supply prices. Then, at the third stage, the buyer determines the optimal order quantities from the two suppliers. The solution method for solving the established model is developed, and the influence on the optimal solution of supply stability, production cost and the improvement effect of investment is also analyzed. The obtained results provide some managerial insights for managing buyer's investment and procurement decisions in dual-sourcing supply chain.

Key words: dual-sourcing, buyer's investment, pricing, procurement