Information sharing of value-adding retailer in a mixed channel hi-tech supply chain

The mixed channel model is becoming increasingly popular in the hi-tech industry where a firm, in addition to selling through the traditional supply chain of wholesaler and retailer, opens a direct channel to the customer through Internet sales. While the dual channel has its advantages, it gives rise to channel conflict. One way of alleviating the possibility of channel conflict is proposed in this paper where the retailer is allowed to add value to the product at a cost. A per unit value-adding cost is considered and any fixed upfront cost is not included. We model this mixed channel where the manufacturer, who is assumed to have more power than the retailer, makes decision on the price of the direct product and the wholesale price it charges the retailer. The retailer makes decision about the amount of the value added and the price of the augmented product. We also take into account the fact that the manufacturer may have only incomplete information about the retailer's cost of adding value. We present this model as a game between the two parties where the manufacturer acts as the leader. We obtain managerial insights into the dual-channel supply chain based on the analytical solutions. We compare the cases of complete and incomplete information and quantify the value of information to the manufacturer. In addition, we find that the retailer would be willing to share information with the manufacturer if her cost of adding value is lower than a threshold value. We report results of numerically obtained sensitivity analysis.