Using online channel to defer the launch of discount retailing store

We examine how a manufacturer can use the strategy of opening an online channel to manipulate the retailer’s decision on opening a discount store to sell a supplier’s off-price product competing with the manufacturer’s product. We find that without the discount store’s threat, the manufacturer would not establish an online channel when the setup cost is large. However, it has to establish an online channel to deter the retailer from introducing a discount store, even if the setup cost is high. We find that the retailer can be more profitable when the cost of introducing a discount store is higher.