Manufacturer’s Online Channel Encroachment with Consumer Fairness Concern

Abstract

To attract more consumers, many manufacturers who sell through the e-commerce platform introduce an agency channel in addition to the reselling channel. Henceforth, consumers pay more attention to fairness concerns in transactions when they can purchase products from different channels. In this work, we investigate the manufacturer’s online channel encroachment strategy with consumer fairness behavior. By developing a game theory model, we analyze whether the manufacturer should introduce an agency channel and examine how the consumer fairness concern affects the firms’ decisions and profits. Our results show that the manufacturer’s optimal choice is moderated by the interaction between multiple factors. Specifically, when consumer channel preference and the commission rate are high, and if the consumer fairness concern is also sufficiently intense, it is more beneficial for the manufacturer to adopt a single mode. Otherwise, a hybrid mode is an optimal choice. Interestingly, we find that channel encroachment is not always harmful to the platform. We further show that our main results still hold when we extend our model by taking into consideration the cases of consumer fairness concern about the manufacturer, fairness concern heterogeneity, information search costs, and the upstream competition.

Keywords

Online platform / fairness concern / channel encroachment / supply chain

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