Abstract: Firms commonly confront the choice of making components them selves or outsourcing them to suppliers, which is known as choice problem of a firm's vertical integration in industrial organization theory.Taking the profits of upper suppliers and downstreament erprises and the consumer surplus as optimization targets respectively, this paper studies upstream suppliers product pricing, parts' Make-or-Buy of downst reament erprises on the basis of pointing out that downstream firms' Make-or-Buy market behavior changed organizational structure of the industry.This papernests the Cournot game into the Stackelberg game and establishes complex game model of the industrial or ganization, obtains different equalibriums in the different structures of this industrial organization, which are the best producing and management decisions to related corporations.For the upstream suppliers, downstream companies out sourcing parts production always can make higher profits, and the gap between the two increases with the market capacity increasing.For the downstream enterprises, the profit from making in-house is always higher than the profit from parts out sourcing, and the profit of enterprises in competition is also changing, accompany with market capacity in the same direction.These results provide effective reference for supply chainenter prises in competitive environment to institute the optimal marketing strategy, especially for companies to constitute Make-or-Buy decision.

Key words: Logistics and Supply Chain Management, outsourcing strategy, Stackelberg competition, cournot competition