The Implication of Channel Discrepancy in a Dual-Channel Supply Chain

This paper studies the implication of channel discrepancy between the retail and direct channels in a dual-channel supply chain consisting of one common retailer and two manufacturers in which the manufacturers may have different market powers. Each manufacturer provides a substitutable product and opens an online channel to customers directly. We develop an analytical model to derive the optimal pricing strategies by using game theory and the backward induction method, and we examine related properties under three market power structures while considering channel discrepancy, including the Nash equilibrium, the Manufacturers leader Stackelberg, and the M1 leader Stackelberg models (denoted as the N, MS, and M1S models, respectively). Numerical simulations are examined to reveal and verify the effect of channel discrepancy on optimal prices, demands, and profits. We find that a higher level of channel discrepancy induces higher prices, demands, and profits for each member in both channels, while this kind of stimulating impact for the leader manufacturer who obtains a higher level of channel discrepancy will be more significant than it is for the other members in the three models. In addition, the profit of the supply chain in the N model is always higher than it is in the MS model, while it may be higher or lower than it is in the M1S model depending on the level of channel discrepancy.