Manufacturer encroachment and product assortment under vertical differentiation

Ting Zhang, Xiaohui Feng, Ningning Wang*

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)peer-review

57 Citations (Scopus)

Abstract

To study channel choice and assortment selection under vertical differentiation, we propose game-theoretic models in a supply chain consisting of a two-product manufacturer and a retailer. The manufacturer can encroach to build an online channel to sell directly to consumers, in addition to selling indirectly via an offline channel operated by the retailer. This dual-channel supply chain incorporates both product competition and channel competition. Product competition exists no matter whether the manufacturer encroaches, because the products compete for same end consumers. Channel competition (i.e., the competition between the online and offline channels) occurs when the manufacturer encroaches. Although incurring channel competition, manufacturer encroachment alleviates product competition, because the dual-channel supply chain can distribute different products via different channels. We find that manufacturer encroachment causes a win-lose situation for the manufacturer and the retailer, and may benefit or harm the supply chain. When the initial product competition is fierce or the disutility of online shopping is trivial, the positive effect of alleviated product competition dominates the negative effect of incurred channel competition, and thus manufacturer encroachment benefits the supply chain. Our extended models show that the main results are robust.

Original languageEnglish
Pages (from-to)120-132
Number of pages13
JournalEuropean Journal of Operational Research
Volume293
Issue number1
Early online date14 Mar 2021
DOIs
Publication statusPublished - 16 Aug 2021

Bibliographical note

Funding Information:
This research is supported by the National Natural Science Foundation of China (NSFC) (Grant No. 71901137 , 72001002 , and 71772115 ).

Publisher Copyright:
© 2020 Elsevier B.V.

Keywords

  • Dual-channel
  • Game theory
  • Product assortment
  • Supply chain management
  • Vertical differentiation

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