Pricing Decisions on Online Channel Entry for Complementary Products in a Dominant Retailer Supply Chain

This study considered the supply chain that two manufacturers sell green complementary products to a dominant offline retailer. We investigated whether a manufacturer (the integrated manufacturer) should add an online channel and examined how it affects channel members’ decisions and profits. We formulated the power structure as the retailer-Stackelberg model and analyzed the pricing decisions for the supply chain. The results demonstrate that the integrated manufacturer prefers not to add the online channel when online and offline market bases are comparable and the level of complementarity is moderate. The integrated manufacturer gains more power at the expense of the offline retailer and the other manufacturer (the traditional manufacturer) when the complementarity between the offline and online channel is the same as offline channels with the addition of a new online channel; furthermore, the retailer earns less, while the traditional manufacturer’s profit hinges on the complementarity between the online and offline channels. It is beneficial for the offline retailer to balance the online and offline market bases of product 1 by improving the sales environment of the physical store. The integrated manufacturer can benefit from varying their marketing actions to decrease the degree of complementarity between the retail and online channels for the two products, while the traditional manufacturer can be better off from the online channel introduction by taking steps to increase the complementarity of the two products between the offline channels.