Online market entry and channel sharing strategy with direct selling diseconomies in the sharing economy era

Guo Li, Xuefeng Zhang, Su-Mei Chiu, Mengqi Liu and Suresh Sethi

International Journal of Production Economics, 2019, vol. 218, issue C, 135-147

Abstract: Channel sharing is an important marketing strategy for giant retailers who sell their own store brands and resell national brands for cooperative manufacturers simultaneously. To expand their market and increase profitability, national brand manufacturers may consider entering the online market through direct selling. To counter such threats, retailers may adopt a channel sharing strategy on whether to terminate the national brand product-reselling business. We analyze three scenarios, namely, the base scenario (the retailer sells both brands), the dual channel scenario (the manufacturer enters the online market while the retailer sells both brands), and the termination scenario (each firm sells their own brand because of the retailer's termination of the reselling business) to investigate the strategic interactions between the retailer and the manufacturer. We find that the termination of channel sharing by the retailer is an ineffective threat to prevent the manufacturer from entering the online market when the direct selling diseconomy is relatively low; otherwise, the effectiveness of the retailer's threat hinges on the store brand's quality. Specifically, the retailer's threat is valid if the store brand products' quality is low, whereas such threat is invalid if the store brand's quality is high. Interestingly, our results also reveal that the retailer's profit suffers “a cliff-like drop” in the store brand's quality level. This finding suggests that selling a higher quality store brand may hurt the retailer's profit once the store brand's quality exceeds a certain threshold.

Keywords: Manufacturer entry; Channel sharing; Direct selling diseconomy; Game theory; Competition (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0925527319301756
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:218:y:2019:i:c:p:135-147

DOI: 10.1016/j.ijpe.2019.05.006

Access Statistics for this article

International Journal of Production Economics is currently edited by Stefan Minner

More articles in International Journal of Production Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().