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Discrete Dynamics in Nature and Society
Volume 2017, Article ID 8367547, 12 pages
Research Article

Should a Manufacturer Encroach on Its Retailer’s Operations with Quality Differentiated Products?

School of Management and Economics, University of Electronic Science and Technology of China, Chengdu, China

Correspondence should be addressed to Wei Yan; nc.ude.ctseu@iewnay

Received 26 February 2017; Accepted 27 April 2017; Published 21 June 2017

Academic Editor: Gabriella Bretti

Copyright © 2017 Junwu Chai et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


Despite the fact that manufacturers are progressively encroaching into the retail market by selling products that differ in quality from the products that are already on the market, this issue has received little attention in the literature on dual-channel supply chains. We fill this gap by first considering that a manufacturer sells higher- (lower-) quality products through its own direct channel, whereas all lower- (higher-) quality products are distributed by an independent retailer, and then comparing our equilibrium outcomes with those in the literature of the manufacturer who distributes homogeneous products through both channels. Our results show that, compared to selling lower-quality products directly or offering homogeneous products through both channels, an effort by the manufacturer that is too aggressive in its attempt to encroach on the retail market (i.e., selling higher-quality products directly) not only decreases the retailer’s profits but also reduces the manufacturer’s own profitability. Furthermore, we find that, compared with offering homogeneous products through both channels, selling lower-quality products directly is always beneficial for the retailer but hurts consumers.