The Impact of Manufacturer’s Direct Sales and Cost Information Asymmetry in a Dual-Channel Supply Chain with a Risk-Averse Retailer

Abstract

ABSTRACTWith the development of electronic commerce, more and more manufacturers choose to distribute their products not only through retail channels but also directly to customers through online channels. This phenomenon is called manufacturer encroachment. We investigate the advantages and drawbacks of manufacturer encroachment in a dual-channel supply chain with a risk-averse retailer and stochastic price-dependent demand. By assuming that the manufacturer’s production cost is private, we build a principal–agent model to explore the optimal contracts the retailer will offer and compare four cases based on the information state and distribution strategy of the manufacturer. Furthermore, we discuss the impact of the key parameters on the optimal contracts and profits using numerical experiments. We find that choosing to encroach can bring the manufacturer much greater profit than information asymmetry.