Inducing Supply Chain Transparency through Supplier Encroachment

Abstract

This study investigates a supplier’s voluntary disclosure strategy when it can encroach on a retailer’s operations by selling directly to final consumers. The establishment of a direct sales channel expands market potential, induces the supplier to adopt a more frequent disclosure strategy, and ultimately leads to a higher level of information transparency in the supply chain. Since more quality information is revealed in the presence of a dual channel, the retailer is able to free ride on the supplier’s disclosure to enhance consumers’ quality expectations. In most cases, such a free‐riding effect is positive and can even create a higher ex ante payoff for the retailer in face of the supplier’s encroachment. Conversely, more transparent product quality information does not necessarily benefit the supplier, who can then no longer hide negative quality information from consumers due to the potential change in the channel structure. Thus, we show that the supplier’s ex ante payoff may become lower with encroachment and that the supplier may commit not to encroach on the retail market, even when it has a free option to open a direct sales channel.

Could the E-Commerce Platform’s Big Data Analytics Ease the Channel Conflict From Manufacturer Encroachment? An Analysis Based on Information Sharing and Risk Preference

“…For example, Tsay and Agrawal (2004) showed that when a supplier takes efforts to promote the product, encroachment could mitigate double marginalization and benefit both parties in the supply chain [21]. Guan et al (2020) demonstrated when the product-quality information is the supplier's private information, encroachment changes his quality-disclosure strategy, and thus, conditionally forms a win-win situation [12]. analyzed the influence of manufacturer encroachment in a supply chain with informative advertising investment.…”

“…Effect of the risk preference  on the retailer's profit Fig. [11][12][13] show that, when the market volatility and the accuracy of the e-commerce platform information are fixed, the manufacturer and e-commerce platform's profits decrease with the manufacturer's increasing risk-aversion coefficient. When the degree of the manufacturer's risk aversion increases to a certain extent, the encroachment strategy will never bring additional profits and the manufacturer will abandon the encroachment strategy.…”

“…For example, the manufacturer's direct channel for the clothing brand named Levi's, was forced to shut off due to the retailer's strongly against [7]. Scholars have been concerned about the operation problem brought by this channel conflict in recent years [8][9][11][12].…”

Manufacturer product quality information disclosure with channel encroachment in the E‐commerce age

“…Moreover, recall that the manufacturer discloses information if and withholds information otherwise. Hence, the consumers' expected quality conditional on nondisclosure is given by (Guo, ; Guo & Zhao, ; Guan & Chen, ; Guan et al, ). In line with Grossman (), we assume that the disclosure is truthful.…”

“…And the parameter is sufficient to characterize the quality variation. Note that this assumption is also widely used in operations and marketing literature (see, e.g., Guo, ; Guan & Chen, ; Guan et al, ).…”