Channel competition and collaboration in the presence of hybrid retailing

This paper studies the channel choice problem in an e-retailing market when a reseller and an agency seller are experimenting with a new format, i.e., a hybrid retailing strategy. Under this strategy, the reseller not only sells products to consumers directly, but also expands the market in collaboration with the agency seller who operates a platform. However, the motivation and effectiveness of this strategy are not clear. Therefore, we develop game-theoretic models to investigate retail and wholesale prices, and the equilibrium channel choice. First, we find that the hybrid retailing strategy results in a higher retail price for the reseller; in contrast, the agency seller prefers to reduce the retail price when the fraction of market demand through the hybrid retailing channel is large. Second, we find that the hybrid retailing strategy can benefit all stakeholders when the fraction of market demand through the hybrid retailing channel is small. Third, under a dual retailing channel with price competition, a reseller and an agency seller are still willing to collaborate through a hybrid retailing strategy, because the cost of market expansion caused by this strategy is partly transferred to the manufacturer. Our results can provide meaningful decision support and operational rules for stakeholders to make strategic retail decisions.