Manufacturer’s agency channel encroachment on an online retail platform

Channel encroachment intensifies competition among channels and changes the relationships within the supply chain. This study examines the manufacturer’s agency channel encroachment decision and its impact when it has already operated a platform reselling channel and a retailer channel on the platform. Equilibrium results reveal that the manufacturer’s agency channel encroachment triggers a competition effect, leading to a reduction in market demand for both the platform’s reselling channel and the retailer’s channel, as a larger share of the market shifts toward the manufacturer’s agency channel. To compensate for the losses in sales experienced by the platform and retailer, the manufacturer lowers the wholesale price. The manufacturer consistently benefits from channel encroachment and a Pareto improvement region exists, allowing all supply chain participants to improve their profits. The model is extended to consider sequential decision-making and asymmetric substitution. In comparison, under sequential decision-making, the manufacturer tends to focus more on the competitive effects of channel encroachment, leading to a reduction in channel sales. However, this approach only enhances the manufacturer’s agency profit when the retailer’s substitution capability is relatively strong. The manufacturer faces greater competitive pressure from the retailer under asymmetric channel substitution. Although the manufacturer increases the wholesale price and adjusts sales across channels according to the competitive situation, its profits are always lower than in the symmetric substitution case. The presence of a Pareto improvement region in the extended model confirms the robustness of our findings.