Competition and cooperation in a supply chain with an offline showroom under asymmetric information

Abstract

Offline showrooms develop rapidly to resolve consumers’ uncertainty about whether products fit their needs when they purchase online. This paper considers a supply chain where an offline showroom provides experience service for an existing online retailer and intends to introduce a new competing online retailer to satisfy consumers’ heterogeneous demand. The offline showroom has better knowledge of demand information due to closer to offline consumers. We examine the impact of competition and the offline showroom's optimal channel cooperation strategy under asymmetric information and analyse the equilibrium results under the optimal strategy to shed light on channel cooperation and information strategy for supply chain members. We find that under asymmetric information competition prompts the offline showroom to conceal information which generates signal cost (negative information effect) and to increase experience service level which creates value (positive service effect). The optimal channel cooperation strategy depends on the trade-off between these effects. We also find that competition increases the existing online retailer's profit in some conditions. Besides, in some conditions information asymmetry harms all supply chain members, which suggests the offline showroom to share information with the online retailers; in some conditions, information asymmetry harms the offline showroom but benefits the online retailers.

Keywords:

• offline showroom
• supply chain
• channel cooperation
• competition
• asymmetric information
• signalling game

Acknowledgement

The authors are grateful to the editors and the four anonymous reviewers for their constructive comments and valuable suggestions, which improves the quality of this paper.

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCID

Xumei Zhang http://orcid.org/0000-0002-3022-5003

Supplemental data

Supplemental data for this article can be accessed at https://doi.org/10.1080/00207543.2019.1661536

Notes

1 http://www.stats.gov.cn/english/PressRelease/201901/t20190124_1646614.html

2 https://www.alizila.com/home-times-furniture-store/

3 Considering that consumers prefer different channels for purchasing (Dzyabura and Jagabathula 2018), and this paper study that the offline showroom exerts experience service to attract consumers who prefer offline channel (offline consumers for short) to experience the product, similar to Gao and Su (2017a), we assume that the demand of consumers who prefer online channel is exogenous and normalized to 0.

4 Binomial distribution helps to reduce technical complexity and gain management insight of the signalling game (Anand and Goyal 2009; Yan, Zhao, and Lan 2017). It is found that continuous distribution generates few additional insights in many incomplete information games (Laffont and Martimort 2009). Furthermore, a signalling game involves more sophisticated game-theoretic arguments than other incomplete information games (Bolton and Dewatripont 2005). Besides, Milgrom and Roberts (1982) consider a signalling game with both binomial and continuous distribution, and find that the insights are essentially the same. Thus, we also adopt binomial distribution in this paper.

Additional information

Funding

This research is supported by the National Natural Science Foundation of China [grant number 71572020]; the National Key Research and Development Program of China [grant number 2018YFB1701502]; Fundamental Research Funds for the Central Universities of China [project No. 2017CDJSK02PT08].