Consumer Choice, Firm Performance and Channel Coordination in a Dual-Channel Distribution System

Wei  Song; Renwen  Wang; Yelin  Fu; Xiaobao  Peng

doi:10.4236/ajor.2014.44021

Wei Song, Renwen Wang^*, Yelin Fu, Xiaobao Peng

Abstract: The expanding role of the Internet in consumer purchasing activities has created substantial new opportunities accessing to end-consumers. More and more manufacturers are beginning to sell products to potential consumers directly online while continuing to sell through the traditional brick-and-mortar retailers, a phenomenon leading to intense channel competition and conflicts. Using game theory, this research examines the effect of market segments, consumer choice and the acceptance of direct online channels on firm performance and the whole system’s profit. The analysis indicates that the addition of direct online channel does not necessarily harm the incumbent retailers. A win-win zone is proposed, in which both the manufacturer and the retailer benefit from the encroachment.

Keywords: Dual-Channel, Encroachment, Consumer Choice, Win-Win Zone, Game Theory, Channel Coordination

Cite this paper: Song, W. , Wang, R. , Fu, Y. and Peng, X. (2014) Consumer Choice, Firm Performance and Channel Coordination in a Dual-Channel Distribution System. American Journal of Operations Research, 4, 217-227. doi: 10.4236/ajor.2014.44021.

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