Pricing and channel choices for the competitive direct channel introduction

Abstract

The rapid development of Internet and even mobile Internet provides the traditional manufacturers with an access to more end consumers than before. An increasing number of firms are considering adding a direct channel to expand their market and gain more profits, but they are also discouraged by the incidental channel conflict with their retailer. Based on the classical Stackelberg game, we make a comparison of the channel members' pricing strategies under different channel structures after the manufacture adds a direct channel with attempts to buffer the channel conflict. We find that the referral scheme can help to ease channel conflict. Our research provides useful managerial insights for firms to make the channel choice and pricing decisions to collaborate with each other.