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

Abstract

This study investigates the interplay between a manufacturer's quality disclosure and channel encroachment. We show that there exists a U-shaped pattern between the manufacturer's payoff and the disclosure cost, whereas the retailer's payoff exhibits a more complicated and nonmonotonic relationship with respect to the disclosure cost. Both firms may benefit from the increase of the disclosure cost when it falls into the intermediate range and when the channel substitution rate is not too low. The increase of the encroachment cost always hurts the manufacturer, and it may even hurt the retailer if it is medium and if the channel substitution rate is low.

Supplier Encroachment in the Supply Chain in the E-Commerce Age: A Systematic Literature Review

“…In practice, it is very common that there exists asymmetric information regarding market demand (e.g., [2,8,12,14,[22][23][24]48,[58][59][60]), product quality (e.g., [18,61]), or the direct selling cost (e.g., [36,62]) in a supply chain between the supplier and the retailer. Significantly, the downstream retailer generally has an advantage on demand information compared with the upstream supplier because the former is closer to the final market and is more skilled in predicting consumer demand.…”

“…Similarly, demand information sharing decisions of the retailer combined with the production (dis)economy [58] or the retailer's risk-averse behavior [60] have been considered when the supplier has the encroachment capability. Regarding the asymmetric product quality information, there are papers studying supplier's product quality disclosure strategies when he decides to encroach on the retail market and sells products directly to final consumers [18,61]. Concerning the cost information asymmetry, Zhang et al [36] explore the retailer's service investing which could be viewed as a strategy to deter the supplier's encroachment behavior in a retailer-led setting where the supplier possesses his private direct selling cost information.…”

“…Moreover, by using this model, there are many enlightening conclusions and suggestions have been obtained for supply chain management. For example, information management implications in supply chain shown in [2,8,22,23,25,26,61], investment management implications examined in [5,11,21,47,59], and contract mechanism designs investigated in [12,35,44].…”

“…It is assumed that the product quality is a random variable that follows a uniform distribution between 0 (the lowest quality) and 1 (the highest quality), m ∼ U[0, 1]. As a result, firms can privately observe the product's exact quality level m before putting it into the market, while the consumer holds a prior belief about the distribution of product quality [18,61]. Besides, when the supplier sells products directly to final consumers, he incurs a unit selling cost, c, which is kept as his private information.…”

Manufacturer encroachment on a closed‐loop supply chain with design for remanufacturing

“…It is well established that developing direct channels benefits manufacturers by expanding market coverage (Chiang et al, 2003), promoting brand awareness and loyalty (Blair & Lafontaine, 2005), and accessing more accurate direct market demand information (Li et al, 2014). However, encroachment might also cause intense channel competition, cannibalize retailers' market share, and undermine the cooperative relationship between supply chain members in many scenarios (Huang et al, 2020;Tsay & Agrawal, 2009;Zhang & Hezarkhani, 2021).…”