Information sharing strategy and channel selection with substitutable products

In this paper, we develop a supply chain game model consisting of one supplier producing two substitutable products and one e-retailer, in which the e-retailer's demand information sharing strategy and the supplier's encroachment strategy for one of his products will be examined. We find that when demand is sizable, the supplier prefers to encroaching by opening a direct channel, and that the e-retailer is not willing to share the real demand information with the supplier. On the contrary, when demand is small, the supplier prefers to using the e-retail channel due to the high cost of maintaining a direct channel, while the e-retailer is inclined to share information with the supplier. Next, we show that the information sharing strategy of the e-retailer and the channel selection strategy of the supplier are interrelated. The e-retailer's sharing strategy is mainly used to dispel the supplier's expectation of encroachment in the high demand situation. In some cases, this strategy depends on the range of product substitution rates. Moreover, we also examine the impact of the supplier channel selection on the product that has not entered the direct sales channel. We find that the retail price of the product that does not use channel encroachment increases, which can lead to a higher profit for the e-retailer under certain conditions. Furthermore, we study the effect of the product substitution on the channel members' profits and show that the fierce competition between the two products can reduce the e-retailer's profit. Finally, we extend our model to various cases to show the robustness of the main results.