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Impact of channel power and fairness concern on supplier’s market entry decision

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Journal of the Operational Research Society

Abstract

In a two-stage supply chain comprising a supplier and a retailer, we incorporate the concepts of channel power and fairness concern to analyze the supplier’s decision on whether to open an online direct channel or not. With an online channel, the supplier competes with its retailer in a dual-channel system, but the retailer may shift part or all orders to another supplier as the counteraction. Otherwise, the supplier only obtains the wholesaling profit but loses that from the online market. Taking the retail prices and the quality of the online product as decision variables, we show that the introduction of a direct channel leads to the decline of online product’s quality and retail price. Interestingly, we find that the retailer’s profit may be decreasing in its channel power. Comparing the outcomes with those from pure competing channels, we find that the retailer’s order shifting strategy may result in a lose–lose situation for the two firms, but it can be a credible threat to the supplier’s market entry. We also find that the supplier’s fairness concern may effectively reduce its incentives to open an online channel.

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Notes

  1. If \(\theta \) is uniformly distributed over [0, b] where \(b<1\), let \(p_1=bp_1^{\prime },p_2=bp_2^{\prime },w=bw^{\prime }\) then \(D=b-{\frac{p_2}{q}} = b\left( 1-{\frac{p_2^{\prime }}{q}}\right) =bD^{\prime }\), \(D_1={\frac{p_2-p_1}{(1-t)q}}-{\frac{p_1}{tq}}=b\left[ {\frac{p_2^{\prime }-p_1^{\prime }}{(1-t)q}}-{\frac{p_1^{\prime }}{tq}}\right] =bD_1^{\prime }\) and \(D_2=b-{\frac{p_2-p_1}{(1-t)q}}=b\left[ 1-{\frac{p_2^{\prime }-p_1^{\prime }}{(1-t)q}}\right] =bD_2^{\prime }\). Moreover, \(\pi _i=b^2\pi _i^{\prime }\), \(i=1,2\). \(D_i^{\prime }\) and \(\pi _i^{\prime }\) have exactly the same formulation as the current ones, and thus, all our results will not change. We thank an anonymous referee for pointing out this problem.

  2. Typical example is from Asus, a manufacturing service supplier of Apple. In 2006, Asus formally produced and sold self-branded products, when it had negotiated the manufacturing contract with Apple (Wang et al, 2013; Niu et al, 2015).

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Acknowledgements

The authors are grateful to the managing editor and the two anonymous reviewers for their helpful comments and suggestions. This research was supported by the National Natural Science Foundation of China (Nos. 71201175, 71301032, 71571194) and Foundation for the Excellent Youth Scholars of Guangdong Universities and Colleges (Nos. YQ2015014, YQ2015078). Qinquan Cui is supported by The Ryoichi Sasakawa Young Leaders Fellowship Fund.

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Authors and Affiliations

  1. School of Business Administration, South China University of Technology, Guangzhou, People’s Republic of China

    Baozhuang Niu

  2. Sun Yat-sen Business School, Sun Yat-sen University, Guangzhou, People’s Republic of China

    Qinquan Cui

  3. School of Business Administration, Guangdong University of Finance and Economics, Guangzhou, 510320, Guangdong, People’s Republic of China

    Jie Zhang

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  1. Baozhuang Niu
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  2. Qinquan Cui
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  3. Jie Zhang
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Correspondence to Jie Zhang.

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Niu, B., Cui, Q. & Zhang, J. Impact of channel power and fairness concern on supplier’s market entry decision. J Oper Res Soc 68, 1570–1581 (2017). https://doi.org/10.1057/s41274-016-0169-0

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