A direct sale model for fresh vegetables based on a dual channel price game model in China

Abstract

China is the largest vegetable producer in the world. Since 2011, the domestic production and value of vegetables has exceeded food crops, making vegetables the largest agricultural product in China. How to facilitate the efficient distribution of fresh vegetables is concerning more and more people both at home and abroad. Efficient distribution is necessary to balance supply and demand, maintain freshness and to increase farmers' income. In this paper, consumer choice theory provides the theoretical foundation to discuss the necessity and feasibility of a direct sales model. As a relationship exists between distribution channels and consumer preferences in the vegetable market we use convenience as a proxy indicator to build a dual-channel market demand function. We then construct a price game model for a dual-channel market and analyze the results. Finally, we draw our conclusions: (1) the price of the direct sales channel is usually higher than the regular sales channel with the same marginal cost; (2) setting up a direct sales channel will increase producers' profits while reducing the profit of conventional market intermediaries; (3) producers are more likely to change the traditional single channel for direct sales co-existing with traditional channels to reduce costs via e-commerce technology; and (4) the direct sales channel not only expands the conventional channels, but also threatens conventional channel market intermediaries who will make changes or even lower prices in the process of game.