IDEAS home Printed from https://ideas.repec.org/a/kap/mktlet/v24y2013i3p277-292.html
   My bibliography  Save this article

The perils of selling online: Manufacturer competition, channel conflict, and consumer preferences

Author

Listed:
  • Lu Hsiao
  • Ying-Ju Chen

Abstract

Internet channels have grown rapidly in recent years due to advances in information technology. However, many leading manufacturers opt not to sell online. In this paper, we construct a theoretical model with competing manufacturers and an active retailer to explain this market phenomenon. We document the possibility of asymmetric channel structure despite the ex ante symmetry between the manufacturers. Moreover, the increasing prominence of online shopping behaviors does not necessarily lead to the increased adoption of Internet channels. The prevalence of dual-channel strategies can be regarded as a form of prisoners’ dilemma, and the manufacturers may intentionally intensify the product or channel substitution to escape from this undesirable outcome. We explain how demand expansion and competition mitigation drive these unintended consequences and provide some general guidelines for the managerial choice of channel structures. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Lu Hsiao & Ying-Ju Chen, 2013. "The perils of selling online: Manufacturer competition, channel conflict, and consumer preferences," Marketing Letters, Springer, vol. 24(3), pages 277-292, September.
    • Handle: RePEc:kap:mktlet:v:24:y:2013:i:3:p:277-292
    DOI: 10.1007/s11002-012-9216-z
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11002-012-9216-z
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11002-012-9216-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. S. Chan Choi, 1991. "Price Competition in a Channel Structure with a Common Retailer," Marketing Science, INFORMS, vol. 10(4), pages 271-296.
    2. Nanda Kumar & Ranran Ruan, 2006. "On manufacturers complementing the traditional retail channel with a direct online channel," Quantitative Marketing and Economics (QME), Springer, vol. 4(3), pages 289-323, September.
    3. Kyle Cattani & Wendell Gilland & Hans Sebastian Heese & Jayashankar Swaminathan, 2006. "Boiling Frogs: Pricing Strategies for a Manufacturer Adding a Direct Channel that Competes with the Traditional Channel," Production and Operations Management, Production and Operations Management Society, vol. 15(1), pages 40-56, March.
    4. Gangshu (George) Cai & Yue Dai & Sean X. Zhou, 2012. "Exclusive Channels and Revenue Sharing in a Complementary Goods Market," Marketing Science, INFORMS, vol. 31(1), pages 172-187, January.
    5. Wei-yu Kevin Chiang & Dilip Chhajed & James D. Hess, 2003. "Direct Marketing, Indirect Profits: A Strategic Analysis of Dual-Channel Supply-Chain Design," Management Science, INFORMS, vol. 49(1), pages 1-20, January.
    6. Yuxin Chen & Ganesh Iyer & V. Padmanabhan, 2002. "Referral Infomediaries," Marketing Science, INFORMS, vol. 21(4), pages 412-434, May.
    7. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    8. Sridhar Balasubramanian, 1998. "Mail versus Mall: A Strategic Analysis of Competition between Direct Marketers and Conventional Retailers," Marketing Science, INFORMS, vol. 17(3), pages 181-195.
    9. Bernstein, Fernando & Song, Jing-Sheng & Zheng, Xiaona, 2008. ""Bricks-and-mortar" vs. "clicks-and-mortar": An equilibrium analysis," European Journal of Operational Research, Elsevier, vol. 187(3), pages 671-690, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Hai & Leng, Kaijun & Qing, Qiankai & Zhu, Stuart X., 2018. "Strategic interplay between store brand introduction and online direct channel introduction," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 272-290.
    2. Kenji Matsui & Yushi Tsunoda, 2022. "Effectiveness of exclusive territories by competing manufacturers managing dual‐channel supply chains," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(4), pages 1015-1024, June.
    3. Zhang, Ting & Feng, Xiaohui & Wang, Ningning, 2021. "Manufacturer encroachment and product assortment under vertical differentiation," European Journal of Operational Research, Elsevier, vol. 293(1), pages 120-132.
    4. Yushi Tsunoda & Yusuke Zennyo, 2021. "Platform Information Transparency and Effects on Third‐Party Suppliers and Offline Retailers," Production and Operations Management, Production and Operations Management Society, vol. 30(11), pages 4219-4235, November.
    5. Chen, Pingping & Zhao, Ruiqing & Lan, Yanfei, 2022. "E-commerce platform canvassing and service upgrade in an ocean shipping supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 158(C).
    6. Scott Neslin & Kinshuk Jerath & Anand Bodapati & Eric Bradlow & John Deighton & Sonja Gensler & Leonard Lee & Elisa Montaguti & Rahul Telang & Raj Venkatesan & Peter Verhoef & Z. Zhang, 2014. "The interrelationships between brand and channel choice," Marketing Letters, Springer, vol. 25(3), pages 319-330, September.
    7. Noriaki Matsushima & Tomomichi Mizuno, 2018. "Supplier encroachment and retailer effort," ISER Discussion Paper 1027, Institute of Social and Economic Research, Osaka University.
    8. Liu, Weihua & Liang, Yanjie & Tang, Ou & Ma, Xin, 2022. "Channel competition and collaboration in the presence of hybrid retailing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 160(C).
    9. Gao, Sarah Yini & Lim, Wei Shi & Ye, Ziqiu, 2023. "Optimal channel strategy of luxury brands in the presence of online marketplace and copycats," European Journal of Operational Research, Elsevier, vol. 308(2), pages 709-721.
    10. Matsui, Kenji, 2016. "Asymmetric product distribution between symmetric manufacturers using dual-channel supply chains," European Journal of Operational Research, Elsevier, vol. 248(2), pages 646-657.
    11. Chen, Jingxian & Liang, Liang & Yao, Dong-Qing & Sun, Shengnan, 2017. "Price and quality decisions in dual-channel supply chains," European Journal of Operational Research, Elsevier, vol. 259(3), pages 935-948.
    12. Liu, Mengqi & Liang, Ke & Perera, Sandun & Huang, Rui & Ghose, Sanjoy, 2022. "Game theoretical analysis of service effort timing scheme strategies in dual-channel supply chains," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 158(C).
    13. Pan, Cong, 2019. "Manufacturer’s direct distribution with incumbent retailer’s product line choice," Economics Letters, Elsevier, vol. 174(C), pages 136-139.
    14. Xi, Xuan & Zhang, Yulin, 2023. "The interplay between marketplace channel addition and pricing strategy in an e-commerce supply chain," International Journal of Production Economics, Elsevier, vol. 258(C).
    15. Matsui, Kenji, 2017. "When should a manufacturer set its direct price and wholesale price in dual-channel supply chains?," European Journal of Operational Research, Elsevier, vol. 258(2), pages 501-511.
    16. Rufeng Wang & Xiongwei Zhou & Bo Li, 2022. "Pricing strategy of dual-channel supply chain with a risk-averse retailer considering consumers’ channel preferences," Annals of Operations Research, Springer, vol. 309(1), pages 305-324, February.
    17. Ming-fei Chen & Yan-qiu Liu & Yang Song & Qi Sun, 2019. "A Contract Coordination Model of Dual-Channel Delivery between UAVs and Couriers Considering the Uncertainty of Delivery for Last Mile," Discrete Dynamics in Nature and Society, Hindawi, vol. 2019, pages 1-11, December.
    18. Cao, Zixia & Yan, Ruiliang, 2021. "Product nutrition, innovation, advertising, and firm’s financial gains," Journal of Business Research, Elsevier, vol. 133(C), pages 13-22.
    19. Lin, Jing & Ma, Xin & Talluri, Srinivas & Yang, Cheng-Hu, 2021. "Retail channel management decisions under collusion," European Journal of Operational Research, Elsevier, vol. 294(2), pages 700-710.
    20. Rufeng Wang & Siqi Wang & Shuli Yan, 2021. "Pricing and Coordination Strategies of Dual Channels Considering Consumers’ Channel Preferences," Sustainability, MDPI, vol. 13(20), pages 1-15, October.
    21. Xue, Musen & Zhang, Jianxiong & Zhu, Guowei, 2020. "Quantity decision timing with spillover effect and asymmetric demand information," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 142(C).
    22. Jumpei Hamamura & Yusuke Zennyo, 2021. "Retailer voluntary investment against a threat of manufacturer encroachment," Marketing Letters, Springer, vol. 32(4), pages 379-395, December.
    23. Chen, Jingxian & Liang, Liang & Yao, Dong-qing, 2019. "Factory encroachment and channel selection in an outsourced supply chain," International Journal of Production Economics, Elsevier, vol. 215(C), pages 73-83.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wang, Wei & Li, Gang & Cheng, T.C.E., 2016. "Channel selection in a supply chain with a multi-channel retailer: The role of channel operating costs," International Journal of Production Economics, Elsevier, vol. 173(C), pages 54-65.
    2. Kenji Matsui & Yushi Tsunoda, 2022. "Effectiveness of exclusive territories by competing manufacturers managing dual‐channel supply chains," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(4), pages 1015-1024, June.
    3. Eunkyu Lee & Richard Staelin & Weon Sang Yoo & Rex Du, 2013. "A “Meta-Analysis” of Multibrand, Multioutlet Channel Systems," Management Science, INFORMS, vol. 59(9), pages 1950-1969, September.
    4. Matsui, Kenji, 2017. "When should a manufacturer set its direct price and wholesale price in dual-channel supply chains?," European Journal of Operational Research, Elsevier, vol. 258(2), pages 501-511.
    5. Weon Sang Yoo & Eunkyu Lee, 2011. "Internet Channel Entry: A Strategic Analysis of Mixed Channel Structures," Marketing Science, INFORMS, vol. 30(1), pages 29-41, 01-02.
    6. Xiao, Tiaojun & Choi, Tsan-Ming & Cheng, T.C.E., 2014. "Product variety and channel structure strategy for a retailer-Stackelberg supply chain," European Journal of Operational Research, Elsevier, vol. 233(1), pages 114-124.
    7. Matsui, Kenji, 2016. "Asymmetric product distribution between symmetric manufacturers using dual-channel supply chains," European Journal of Operational Research, Elsevier, vol. 248(2), pages 646-657.
    8. Jin, Yannan & Wu, Xiaole & Hu, Qiying, 2017. "Interaction between channel strategy and store brand decisions," European Journal of Operational Research, Elsevier, vol. 256(3), pages 911-923.
    9. Subrata Saha, 2016. "Channel characteristics and coordination in three-echelon dual-channel supply chain," International Journal of Systems Science, Taylor & Francis Journals, vol. 47(3), pages 740-754, February.
    10. Chen, Jingxian & Liang, Liang & Yao, Dong-qing, 2019. "Factory encroachment and channel selection in an outsourced supply chain," International Journal of Production Economics, Elsevier, vol. 215(C), pages 73-83.
    11. He, Bo & Gan, Xianghua & Yuan, Kaifu, 2019. "Entry of online presale of fresh produce: A competitive analysis," European Journal of Operational Research, Elsevier, vol. 272(1), pages 339-351.
    12. Bian, Junsong & Guo, Xiaolei & Li, Kevin W., 2018. "Decentralization or integration: Distribution channel selection under environmental taxation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 113(C), pages 170-193.
    13. Stefano Colombo & Noriaki Matsushima, 2020. "Competition Between Offline and Online Retailers with Heterogeneous Customers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(3), pages 647-664, November.
    14. Vibhanshu Abhishek & Kinshuk Jerath & Z. John Zhang, 2016. "Agency Selling or Reselling? Channel Structures in Electronic Retailing," Management Science, INFORMS, vol. 62(8), pages 2259-2280, August.
    15. Chen, Xi & Zhang, Hui & Zhang, Michael & Chen, Jing, 2017. "Optimal decisions in a retailer Stackelberg supply chain," International Journal of Production Economics, Elsevier, vol. 187(C), pages 260-270.
    16. Cao, James & So, Kut C. & Yin, Shuya, 2016. "Impact of an “online-to-store” channel on demand allocation, pricing and profitability," European Journal of Operational Research, Elsevier, vol. 248(1), pages 234-245.
    17. Bian, Junsong & Guo, Xiaolei & Li, Kevin W., 2015. "Distribution channel strategies in a mixed market," International Journal of Production Economics, Elsevier, vol. 162(C), pages 13-24.
    18. Chen, Xu & Wang, Xiaojun, 2015. "Free or bundled: Channel selection decisions under different power structures," Omega, Elsevier, vol. 53(C), pages 11-20.
    19. Zhang, Yumeng & Hezarkhani, Behzad, 2021. "Competition in dual-channel supply chains: The manufacturers' channel selection," European Journal of Operational Research, Elsevier, vol. 291(1), pages 244-262.
    20. Fabio Caldieraro, 2016. "The Role of Brand Image and Product Characteristics on Firms’ Entry and OEM Decisions," Management Science, INFORMS, vol. 62(11), pages 3327-3350, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:mktlet:v:24:y:2013:i:3:p:277-292. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.