Online channel configuration strategy considering contract manufacturer encroachment and green investment

Increased consumer environmental awareness prompts an original equipment manufacturer (OEM) to work with a green contract manufacturer (CM), where the latter can encroach on the existing market and compete with its OEM by introducing his own-label products. We consider four supply chain scenarios (i.e., NE, ED, EA, and ER) based on the encroachment modes of green CM (i.e., no-encroachment, direct selling, agent selling, and reselling), and explore channel configuration strategies from various perspectives. First, for economic benefit, the CM always encroaches, and entry cost, product substitutability, and agency fee are critical to online channel configuration. The OEM is more reluctant to CM encroachment when two products’ greenness is different. Based on the fact that the agency fee is generally not greater than 0.2, the platform acts as a reseller in most cases. Second, for environmental benefit, both Scenarios ED and EA are likely to be dominant strategies when product greenness is different; otherwise, Scenario ED is always dominant. Finally, consumer surplus can be improved in all encroachment scenarios and consumers prefer Scenario ED in most cases.