Supplier encroachment in the presence of asymmetric retail competition

Suppliers are increasingly adopting direct channels in addition to their incumbent retail channels. In many industries, heterogeneous retailers with different selling costs compete with each other in the retail channel. Yet, the extant literature on supplier encroachment has not addressed the impact of asymmetric retail competition on supply chain interactions. In this paper, we investigate the supplier’s encroachment strategy in the presence of asymmetric retail competition using a game theoretic model. Our analysis reveals the following insights. Retail competition enhances a cost-efficient retailer’s benefit from supplier encroachment. This result contrasts with the established understanding that retailers are less likely to benefit from supplier encroachment in the presence of retail competition. Further, it is well known that retailers cannot benefit from supplier encroachment when the number of retailers competing is beyond a certain threshold. We show that the above result does not necessarily hold when the retailers are asymmetric. Specifically, we prove that the efficient retailer might benefit from supplier encroachment irrespective of the number of competing retailers. Finally, we show that asymmetric retail competition not only makes it easier for the supplier to encroach but also boosts the direct selling quantity. Our study contributes to the supplier encroachment literature by revealing the impact of asymmetric retail competition on the supplier’s encroachment strategy.