Asymmetric product distribution between symmetric manufacturers using dual-channel supply chains

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Abstract

This paper investigates the optimal product distribution strategy for a manufacturer that uses dual-channel supply chains. We assume that two symmetric manufacturers facing price competition distribute products through (1) a retail channel only, (2) a direct channel only, or (3) both retail and direct channels. Our most notable result is that even though the two manufacturers are symmetric, a subgame perfect equilibrium always arises, including an asymmetric distribution policy, where one manufacturer distributes products only through the direct channel, while the other manufacturer distributes through both the direct channel and the retail channel. A practical implication of this result is that a symmetric distribution policy is not necessarily optimal for a manufacturer encountering price competition. In particular, when another competing manufacturer distributes products through its dual channels, a manufacturer should not similarly adopt a dual-channel distribution strategy just to counter the rival's dual-channel strategy. Such a symmetric dual-channel distribution strategy would trigger the most intense inter-brand competition, eroding not only the rival's profit, but also its own profit.

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