Abstract
ABSTRACTWe investigate a manufacturer’s three possible online strategies while the manufacturer also distributes its product through an independent retailer in a traditional channel. Under direct selling, the manufacturer sells its products to online consumers directly. Under reselling, the manufacturer sells its product through an e-tailer. Under agency selling, the manufacturer sells its products to consumers through an online agent’s website and pays the agent a commission fee. We show that it is optimal for the manufacturer to choose direct selling if the operating cost for the online channel under direct selling is sufficiently low relative to that under reselling as well as the online agent’s commission fee. Similarly, reselling through an e-tailer is optimal to the manufacturer if the operating cost for the online channel under reselling is sufficiently low. Furthermore, agency selling should be chosen if the online agent’s commission fee is sufficiently low. However, a strategy with a low online cost (including the operating costs under direct selling and reselling, and the commission fee under agency selling) may lead to a low profit for the traditional retailer, which eventually causes a low total profit for the supply chain. Nonetheless, consumers generally benefit from the manufacturer’s optimal online distribution strategy because of low prices and high quantities.
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