Fairness in Dual Channel

Abstract

A dual channel strategy can reach a larger consumer segment but it also causes channel conflict. This paper studies the competition between a manufacturer owned online channel and a traditional retail channel when both channels offer identical products and compete on prices. We consider three game settings: (i) the retailer as the price leader, (ii) the manufacturer as the price leader, and (iii) the retailer and the manufacturer set the prices simultaneously. Through solving the game theoretical model, we showed that the manufacturer may undercut the retail channel price when the retailer is the price leader and there are not any store loyal consumers in the market. This result contradicts with the manufacturers’ claim that they avoid undercutting their retailers’ prices. Our analysis also reveals that when the manufacturer is the price leader, the supply chain efficiency is the highest.