  Supply chains are the backbone of the global economy. Disruptions to them can
be costly. Centrally managed supply chains invest in ensuring their resilience.
Decentralized supply chains, however, must rely upon the self-interest of their
individual components to maintain the resilience of the entire chain.
  We examine the incentives that independent self-interested agents have in
forming a resilient supply chain network in the face of production disruptions
and competition. In our model, competing suppliers are subject to yield
uncertainty (they deliver less than ordered) and congestion (lead time
uncertainty or, "soft" supply caps). Competing retailers must decide which
suppliers to link to based on both price and reliability. In the presence of
yield uncertainty only, the resulting supply chain networks are sparse.
Retailers concentrate their links on a single supplier, counter to the idea
that they should mitigate yield uncertainty by diversifying their supply base.
This happens because retailers benefit from supply variance. It suggests that
competition will amplify output uncertainty. When congestion is included as
well, the resulting networks are denser and resemble the bipartite expander
graphs that have been proposed in the supply chain literature, thereby,
providing the first example of endogenous formation of resilient supply chain
networks, without resilience being explicitly encoded in payoffs. Finally, we
show that a supplier's investments in improved yield can make it worse off.
This happens because high production output saturates the market, which, in
turn lowers prices and profits for participants.
