Selection policy for a manufacturer’s online channel: do it oneself or cooperate with retailers

This article compares two dual-channel models in a unified framework, using the traditional single-channel supply chain as a benchmark. Stackelberg games are applied to obtain the optimal equilibrium solutions to the two models. Our analysis indicates that although the manufacturer can always obtain more profit through his own dual channels than through a retailer's dual channels, the retailer dual-channel model can capture the online market better than the manufacturer dual-channel model. Furthermore, we find that the manufacturer's ability to control the channels will greatly influence the online entry of the retailer. We present the conditions under which the profits of the manufacturer (or the retailer) will be enhanced (or worsened) in these two dual-channel models. Finally, we extend the models in two directions. First, we generalize the models to a situation in which both the manufacturer and the retailer open e-channels simultaneously. Second, we extend the models to include cases where the online discount rate is treated as a decision variable. Analytical results from the extended models are then discussed and interpreted.