Manufacturer encroachment and quality investment decisions in a two‐period supply chain

Abstract

With the development of Internet technology, many manufacturers encroach into the retail market by selling products directly to consumers, which is called manufacturer encroachment. In practice, the manufacturer may encroach in normal sales period, markdown period, or both periods in a two‐period supply chain. It is a challenging task for the firm manager to provide appropriate quality level under different channel structures. This research originally studies manufacturer encroachment with endogenous quality investment decision in a two‐period supply chain considering that consumers' valuation of products depreciates over time. Using a game‐theoretic framework, this work explores four channel strategies of the manufacturer and discusses equilibrium decisions and profits. The analysis generates several insights. First, the manufacturer should promote quality investment if encroachment occurs when the direct selling is efficient. Second, regardless of which period and scenario, encroachment may increase wholesale price when the direct selling cost is smaller than a threshold. Third, results show the effect of encroachment time on price could be classified into quality investment effect, wholesale price effect, and channel‐adding effect. The quality investment effect increases retail price, while the channel‐adding effect and wholesale price effect decrease retail price. Finally, results reveal that encroachment is always the best choice for the manufacturer and it does not always harm the retailer's profits. Overall, our results and managerial insights can help the manufacturer to formulate channel strategies, wholesale price, and selling quantity decisions while help the retailer to make order quantity decision.

Value of blockchain‐enabled supply chain traceability under competition

“…Quality improvement within a supply chain has been studied for decades (Pal et al., 2015; Yan, 2018; Hong et al., 2021; Jin et al., 2023; Wang et al., 2024). Because quality effort is usually non‐contractible, the existing literature generally focuses on mechanism design so as to stimulate quality efforts in a decentralized supply chain.…”

Distributing the fashion product in direct or retail channel: The impact of fashion level and direct selling cost

“…The distribution of products through a dual-channel supply chain has been studied extensively in prior literature, e.g., Ha et al (2016), Zhang et al (2021), Jin et al (2022), and Wang et al (2023). Ha et al (2016) and Wang et al (2023) show that a manufacturer can be better off in a dual-channel supply chain while the retailer is also better off.…”

“…The distribution of products through a dual-channel supply chain has been studied extensively in prior literature, e.g., Ha et al (2016), Zhang et al (2021), Jin et al (2022), and Wang et al (2023). Ha et al (2016) and Wang et al (2023) show that a manufacturer can be better off in a dual-channel supply chain while the retailer is also better off. The results of their work, however, are obtained under the assumption that only a product is distributed in the supply chain and a consumer's purchase decision is made by considering the quality of the product.…”

“…(2016) and Wang et al. (2023) show that a manufacturer can be better off in a dual‐channel supply chain while the retailer is also better off. The results of their work, however, are obtained under the assumption that only a product is distributed in the supply chain and a consumer's purchase decision is made by considering the quality of the product.…”