Retail Channels Choice under Competition: Platform-Sell or Traditional Resell

This paper investigates retailers' channels choice in a two-tier supply chain system consisting competing manufacturers and competing retailers. Each manufacturer produces a single substitutable product, and sells it through two common retailers. Retailers, as Stackelberg leaders, may offer two different channel structures to manufacturers, either traditional retailing or platform retailing. We compare four channel configurations and seek for a subgame Nash equilibrium. Our results show that, without product service, the equilibrium channel structure of the retailers would move from the platform retailing to traditional channel as the product competition intensifies and the platform retailing is a dominant equilibrium strategy. Conversely, while the product service is offered, the platform retailing is a unique Nash equilibrium, and it may push the retailers into the prisoner's dilemma.