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The perils of selling online: Manufacturer competition, channel conflict, and consumer preferences

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  • Lu Hsiao
  • Ying-Ju Chen

Abstract

Internet channels have grown rapidly in recent years due to advances in information technology. However, many leading manufacturers opt not to sell online. In this paper, we construct a theoretical model with competing manufacturers and an active retailer to explain this market phenomenon. We document the possibility of asymmetric channel structure despite the ex ante symmetry between the manufacturers. Moreover, the increasing prominence of online shopping behaviors does not necessarily lead to the increased adoption of Internet channels. The prevalence of dual-channel strategies can be regarded as a form of prisoners’ dilemma, and the manufacturers may intentionally intensify the product or channel substitution to escape from this undesirable outcome. We explain how demand expansion and competition mitigation drive these unintended consequences and provide some general guidelines for the managerial choice of channel structures. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Lu Hsiao & Ying-Ju Chen, 2013. "The perils of selling online: Manufacturer competition, channel conflict, and consumer preferences," Marketing Letters, Springer, vol. 24(3), pages 277-292, September.
    • Handle: RePEc:kap:mktlet:v:24:y:2013:i:3:p:277-292
    DOI: 10.1007/s11002-012-9216-z
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    References listed on IDEAS

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    Cited by:

    1. Li, Hai & Leng, Kaijun & Qing, Qiankai & Zhu, Stuart X., 2018. "Strategic interplay between store brand introduction and online direct channel introduction," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 272-290.
    2. Kenji Matsui & Yushi Tsunoda, 2022. "Effectiveness of exclusive territories by competing manufacturers managing dual‐channel supply chains," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(4), pages 1015-1024, June.
    3. Zhang, Ting & Feng, Xiaohui & Wang, Ningning, 2021. "Manufacturer encroachment and product assortment under vertical differentiation," European Journal of Operational Research, Elsevier, vol. 293(1), pages 120-132.
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    6. Scott Neslin & Kinshuk Jerath & Anand Bodapati & Eric Bradlow & John Deighton & Sonja Gensler & Leonard Lee & Elisa Montaguti & Rahul Telang & Raj Venkatesan & Peter Verhoef & Z. Zhang, 2014. "The interrelationships between brand and channel choice," Marketing Letters, Springer, vol. 25(3), pages 319-330, September.
    7. Noriaki Matsushima & Tomomichi Mizuno, 2018. "Supplier encroachment and retailer effort," ISER Discussion Paper 1027, Institute of Social and Economic Research, Osaka University.
    8. Liu, Weihua & Liang, Yanjie & Tang, Ou & Ma, Xin, 2022. "Channel competition and collaboration in the presence of hybrid retailing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 160(C).
    9. Gao, Sarah Yini & Lim, Wei Shi & Ye, Ziqiu, 2023. "Optimal channel strategy of luxury brands in the presence of online marketplace and copycats," European Journal of Operational Research, Elsevier, vol. 308(2), pages 709-721.
    10. Matsui, Kenji, 2016. "Asymmetric product distribution between symmetric manufacturers using dual-channel supply chains," European Journal of Operational Research, Elsevier, vol. 248(2), pages 646-657.
    11. Chen, Jingxian & Liang, Liang & Yao, Dong-Qing & Sun, Shengnan, 2017. "Price and quality decisions in dual-channel supply chains," European Journal of Operational Research, Elsevier, vol. 259(3), pages 935-948.
    12. Liu, Mengqi & Liang, Ke & Perera, Sandun & Huang, Rui & Ghose, Sanjoy, 2022. "Game theoretical analysis of service effort timing scheme strategies in dual-channel supply chains," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 158(C).
    13. Pan, Cong, 2019. "Manufacturer’s direct distribution with incumbent retailer’s product line choice," Economics Letters, Elsevier, vol. 174(C), pages 136-139.
    14. Xi, Xuan & Zhang, Yulin, 2023. "The interplay between marketplace channel addition and pricing strategy in an e-commerce supply chain," International Journal of Production Economics, Elsevier, vol. 258(C).
    15. Matsui, Kenji, 2017. "When should a manufacturer set its direct price and wholesale price in dual-channel supply chains?," European Journal of Operational Research, Elsevier, vol. 258(2), pages 501-511.
    16. Rufeng Wang & Xiongwei Zhou & Bo Li, 2022. "Pricing strategy of dual-channel supply chain with a risk-averse retailer considering consumers’ channel preferences," Annals of Operations Research, Springer, vol. 309(1), pages 305-324, February.
    17. Ming-fei Chen & Yan-qiu Liu & Yang Song & Qi Sun, 2019. "A Contract Coordination Model of Dual-Channel Delivery between UAVs and Couriers Considering the Uncertainty of Delivery for Last Mile," Discrete Dynamics in Nature and Society, Hindawi, vol. 2019, pages 1-11, December.
    18. Cao, Zixia & Yan, Ruiliang, 2021. "Product nutrition, innovation, advertising, and firm’s financial gains," Journal of Business Research, Elsevier, vol. 133(C), pages 13-22.
    19. Lin, Jing & Ma, Xin & Talluri, Srinivas & Yang, Cheng-Hu, 2021. "Retail channel management decisions under collusion," European Journal of Operational Research, Elsevier, vol. 294(2), pages 700-710.
    20. Rufeng Wang & Siqi Wang & Shuli Yan, 2021. "Pricing and Coordination Strategies of Dual Channels Considering Consumers’ Channel Preferences," Sustainability, MDPI, vol. 13(20), pages 1-15, October.
    21. Xue, Musen & Zhang, Jianxiong & Zhu, Guowei, 2020. "Quantity decision timing with spillover effect and asymmetric demand information," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 142(C).
    22. Jumpei Hamamura & Yusuke Zennyo, 2021. "Retailer voluntary investment against a threat of manufacturer encroachment," Marketing Letters, Springer, vol. 32(4), pages 379-395, December.
    23. Kittaka, Yuta & Pan, Cong, 2023. "The bright side of outside market entry with manufacturer encroachment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 180(C).
    24. Chen, Jingxian & Liang, Liang & Yao, Dong-qing, 2019. "Factory encroachment and channel selection in an outsourced supply chain," International Journal of Production Economics, Elsevier, vol. 215(C), pages 73-83.

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