Channel encroachment and carbon reduction with demand information asymmetry

Abstract

This paper constructs a two-echelon supply chain composed of one production enterprise and one distribution enterprise. Through the signal game model, we discuss the channel encroachment and carbon reduction strategies of the production enterprise under no information and information asymmetry. The research shows that under no information, the production enterprise always prefers channel encroachment. And when the direct selling cost is high, encroachment benefits the distribution enterprise. Under information asymmetry, encroachment hurts the distribution enterprise when the direct selling cost is low; interestingly, when the direct selling cost is high, a win-win situation will result where the channel encroachment can increase both the production and distribution enterprises’ profit. Whether there is no information or information asymmetry, only when the encroachment cost is low can the carbon reduction of the production enterprise be improved; otherwise, it is not beneficial to carbon reduction. In the extension, we also discuss the impact of different decision sequences on equilibrium strategies and the impact of encroachment on consumer surplus and social welfare.