Effects of e-commerce channel entry in a two-echelon supply chain: A comparative analysis of single- and dual-channel distribution systems

In this paper, we examine the effects of electronic commerce (e-commerce) channel entry on the profitability and behavior of manufacturers and physical retailers within a distribution system. We compare two distribution structures, namely, single and dual channel. In our dual-channel model, the new e-commerce channel is independent of the manufacturer and the physical retailer. Our findings indicate that for these kinds of channel structures, the dual-distribution channel may be unprofitable to the manufacturer, and that the physical retailer may benefit from e-commerce channel entry. We show that if e-channel efficiency is adequately low or the acceptance of the conventional channel is low, the e-commerce channel may dominate the distribution system; otherwise, the conventional channel may dominate. If the channel acceptance of a conventional channel is below a certain threshold, the manufacturer may benefit from e-channel entry; otherwise, the manufacturer is placed at a disadvantage. If the e-channel is sufficiently competitive, then using the e-channel becomes a useful strategy for the manufacturer. Finally, we show that the manufacturer may be worse off selling in a dual-channel distribution structure if e-channel efficiency is low. This observation is important because in adopting a less efficient new channel is disadvantageous to the manufacturer.