Strategic analysis of manufacturer encroachment in dual-channel supply chains with platform service

Abstract

This paper considers a dual-channel supply chain with two members, comprising a manufacturer and an online platform. We mainly investigate the influence of various key system variables on manufacturer encroachment strategy and all members’ optimal decisions through Stackelberg game models. Our findings show that, regardless of the size of each parameter, the encroachment strategy is always optimal to the manufacturer; the manufacturer may be motivated to choose the direct selling channel and the platform may opt for the agency selling channel due to a high commission rate. Moreover, when the inter-channel substitution rate is high, the encroachment strategy has a diminishing positive effect on the manufacturer and an increasing negative effect on the platform so that the platform may temporarily benefit from the manufacturer encroachment; in cases where the inter-channel substitution rate is not high, the encroachment strategy always yields advantages for the manufacturer while causing disadvantages for the platform. In addition, if the elasticity coefficient is large, both the manufacturer and the platform are inclined to the reselling channel, that is, if the platform service cost is high, it is advisable for the platform to reduce its investment of service to avoid negative effect.