Research on Cost Information Sharing and Channel Choice in a Dual-Channel Supply Chain

Huihui Liu,Ming Lei,Shuguang Sun,Honghui Deng,G Keong Leong

doi:10.1155/2016/4368326

Abstract

Many studies examine information sharing in an uncertain demand environment in a supply chain. However there is little literature on cost information sharing in a dual-channel structure consisting of a retail channel and a direct sales channel. Assuming that the retail sale cost and direct sale cost are random variables with a general distribution, the paper investigates the retailer’s choice on cost information sharing in a Bertrand competition model. Based on the equilibrium outcome of information sharing, the manufacturer’s channel choice is discussed in detail. Our paper provides several interesting conclusions. In both single- and dual-channel structures, the retailer has little motivation to share its private cost information which is verified to be valuable for the manufacturer. When the cost correlation between the two channels increases, our analyses show that the manufacturer’s profit improves. However, when channel choice is involved, the value of information could play a different role. The paper finds that a dual-channel structure can benefit the manufacturer only when the cost correlation is sufficiently low. In addition, if the cost correlation is weak, the cost fluctuation will bring out the advantage of a dual-channel structure and adding a new direct channel will help in risk pooling.

Highlights

With the rapid development of e-commerce and third-party logistics, many manufacturers set up a direct sales channel besides an existing retail channel
For a supply chain with one retail channel, introducing a direct channel will have a big impact on both manufacturers and retailers, since the retail and direct channels compete in the same market
From the proof in Theorem 4, we find that when the retailer chooses to share information, the added profit to the manufacturer is Vm = (1 − ρ2)σ2b2/8; it is clear that the lower ρ is, the higher Vm is

Summary

Introduction

With the rapid development of e-commerce and third-party logistics, many manufacturers set up a direct sales channel besides an existing retail channel. As such the dual-channel structure is becoming more common in the business world. Cost uncertainty influences directly pricing decision, products sales amount in specific sale channel, and even cooperation between upstream and downstream firms. As such cost information sharing becomes an important issue for firms in a supply chain

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