Channel strategies for competing retailers under supplier selection

Abstract

In this paper, we examine competing retailers’ choice of channel strategies (multichannel strategy M or omnichannel strategy O) under supplier selection in a supply chain consisting of two suppliers and two retailers. The results show that whether a retailer will adopt O strategy depends on the efficacy of O strategy for the product it sells and a higher level of competition discourages the retailers from adopting O strategy. Moreover, the retailers apply different channel strategies only if they select different suppliers. If they sell different products, intense competition may benefit one of the two retailers. The most interesting result is that, the two retailers may face prisoner’s dilemma twice. For the retailers’ decisions of supplier selection, when the unit overall cost of one product is sufficiently larger than that of the other product, there exists a prisoner’s dilemma where both retailers sell the product with lower profitability in equilibrium, but they will be better off if they both select the product with higher profitability. For the retailers’ choice of channel strategy, if the efficacy of O strategy is moderate, both retailers will use M strategy in equilibrium, but their profits will be higher if they both use O strategy.