Customers’ Free Riding Effects on the Centralized Dual Channel Supply Chain

While online channels are becoming more and more popular, it has been found that consumers tend to have services in the retail channel but place orders online. This phenomenon is called consumers’ free riding. This paper investigated the impact of consumers’ free riding on the centralized dual channel supply chain which both the direct channel and the retail channel are owned by the manufacturer. The results indicates that the retail channel price should be higher than the direct channel price while consumer’s free riding ratio is lower than the threshold value. Once the consumer’s free riding ratio exceeds the threshold value, the manufacturers should set higher price in the direct channel online. For the profit of the manufacturer, free riding of consumers gives negative effects even if both direct channel and retail channel are owned by the manufacturer. The limitation of this study is that decentralized dual channel supply chain, which has an independent retailer to run the retail channel, has not been studied. The gap will be filled in future study.