Carbon differentials and dual channels: The choice and impact of optimal strategies for manufacturer market encroachment

Abstract This study discusses the cannibalization strategy of an outside manufacturer. A game‐theoretic model is developed in which manufacturers sell low‐quality products through retailers. The external manufacturer chooses between the retailer channel and the direct sales channel when considering carbon differences. The results show that carbon differentials and direct marketing costs play a key role in the choice of cannibalization strategy. Cannibalization by external manufacturers through retailers is not necessarily harmful to existing manufacturers. An increase in the degree of carbon differentiation leads to a decrease in wholesale and retail prices, while direct pricing by external manufacturers increases.