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

ABSTRACT

With 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.

KEY WORDS AND PHRASES:

• Dual distribution channel
• information asymmetry
• manufacturer encroachment
• online-offline channels
• optimal contracts
• risk aversion

Acknowledgments

The authors would like to thank the editor and the anonymous reviewers for their instructive comments on the manuscript.

Funding

This work is supported by the Program for the Humanity and Social Science Foundation of the Ministry of Education, China, No. 12YJAZH052, and the National Nature Science Foundation of China under Grant No. 71472133.

Additional information

Funding

This work is supported by the Program for the Humanity and Social Science Foundation of the Ministry of Education, China, No. 12YJAZH052, and the National Nature Science Foundation of China under Grant No. 71472133.

Notes on contributors

Ping Chen

PING CHEN ([email protected]) is a Ph.D. student in the College of Management and Economics at Tianjin University, Tianjin, China. Her research interests include e-commerce, dual-channel competition, bargaining, and player behavior. She has published in the International Journal of Production Research.

Bo Li

BO LI ([email protected]; corresponding author) is a professor in the College of Management and Economics at Tianjin University. Her research interests include e-commerce, dual-channel competition and coordination in supply chains, game theory, and intelligent computation. She has published in Computers and Operations Research, International Journal of Production Research, Annals of Operations Research, Journal of Cleaner Production, Applied Mathematical Modelling, International Journal of Information Systems and Supply Chain Management, and others.

Yushan Jiang

YUSHAN JIANG ([email protected]) is a Ph.D. student in the College of Management and Economics at Tianjin University. Her research interests include e-commerce, dual-channel competition, consumer returns in online and offline channels, and game theory. She has published in Clean Technologies and Environmental Policy and Mathematical Problems in Engineering.

Pengwen Hou

PENGWEN HOU ([email protected]) is a Ph.D. student in the College of Management and Economics at Tianjin University. His research interests include dual-channel competition and player behavior, bargaining, and supply chain coordination. He has published in the IMA Journal of Management Mathematics.