Selection and impact of decision mode of encroachment and retail service in a dual-channel supply chain

Abstract

<p style='text-indent:20px;'>Consider a supply chain consisting of one manufacturer and one retailer. The manufacturer may open direct channels through ex-ante or ex-post encroachment, and the retailer can provide consumers with ex-ante or ex-post service. We investigates the effects of encroachment and services on the optimal strategy for two members in three decision modes: MR mode (ex-ante encroachment), MRM mode (ex-post encroachment and ex-post service), and MRMR mode (ex-post encroachment and ex-ante service). The results show that in the MRM mode, both the wholesale and retail prices may become higher with encroachment. Improving the service efficiency may hurt the retailer, and increasing the operating cost for direct channels harms the retailer, while benefits the manufacturer. In addition, only in the MRM mode, the retailer maybe benefits from encroachment under certain conditions. We further study the equilibrium mode and the result shows as follows. The MR mode, widely adopted by the literature on manufacturer encroachment, always is worst for the manufacturer. Only when both the operating cost for direct channels and the service efficiency are low, the equilibrium decision mode is the MRMR mode, otherwise the MRM mode is the equilibrium decision mode.</p>