The Manufacturer Sales Channel Selection Under Market Demand Uncertainty

Currently, the Internet has provided a new business sales channel to manycompanies, and it also has provided new opportunities for customers to get moreinformation about products. The Internet channels cause the competition and conflictwith the traditional retailing channel and increase the complexity of the supply chainoperations. The attitudes of manufacturers toward whether or not to add an Internetchannel are not identical, so the attitudes of scholars are.In this paper, firstly, we elaborate the theory of manufacturer sales channels.Secondly, on the basis of the Li’s model, we introduce private information aboutmarket demand of manufacturers to the model. we investigate the manufacturer’schannel choice in the case of undetermined demand and we investigate a two-echelonsupply chain system with a manufacturer and many retailers, using quantitycompetition to model the competition between channels. This paper uses game theoryto analyze the dynamic interactions between the manufacturer and the retailers in thedual channel structure setting and investigates under what conditions the manufacturewould choose to add the Internet channel. While we analyse influences of threeinformation sharing behavior (vertical, level and conspiracy) between manufacturersand retailersWe find that, only when the marginal operating cost of the direct channel isbelow a threshold value, the manufacturer is better off engaging in direct sales.Especially, when the manufacturer obtains more information about market demand,she will be more inclined to add the direct channel. We also find that, in the dualchannel structure, retailer is reluctant to share private information with manufacturerand other retailers. And whether retailers would collude depends on the marginal costof the direct channel.