The Selling Mode in a Supply Chain with Online Retailing

Abstract

In this paper, we consider a supply chain in which two competitive manufacturers sell products through an exclusive pure play e-tailer besides their traditional offline channels. Using a game-theoretical model, we analyze the e-tailer’s optimal choice for the selling mode in the presence of upstream competition, cross-channel spillover and cost asymmetry between the online and offline channels. We reveal that the e-tailer always prefers the agency selling mode to the reselling mode, if the spillover effect of the e-channel on the offline channel is negative. Otherwise, the e-tailer prefers the reselling mode to the agency selling mode, if the cost advantage of the e-channel over the offline channel is small and the competition between the upstream manufacturers is intense.