Qiaoke Zhang is a visiting Ph.D. student from Nanjing University of Aeronautics and Astronautics who currently works with Prof. Benny Mantin. Her research centers around operational management in online retailing, including channel and selling format choice problem, and pricing, etc., by using game theory framework. Ms. Zhang explores questions of quality differentiation in dual-channel supply chains in a recent publication.
Quality differentiation through dual channel is widely adopted since it is considered to be an effective strategy to mitigate channel conflict. However, should the supplier sell the high-quality product through the direct channel and the low-quality product through the indirect retailer channel, or vice versa?
In tandem, online retailers, who traditionally act as resellers, have begun adopting the increasingly popular agency format. Under the reselling format, the supplier determines the wholesale price and sells products to the online retailer, who then sets the retail price charged to customers. Under the agency format, the retailer charges the supplier a proportional commission fee which allows the supplier to gain control over the retail prices through the retailer channel. For the online retailer, which selling format is more beneficial? Addressing these challenges, Ms. Zhang’s working paper “Endogenous Quality Differentiation and Selling Format Choices in Dual-Channel Supply Chains”, co-authored with Prof. Benny Mantin, investigates the supplier’s quality differentiation strategy and the retailer’s selling format choice.
The main results show that the supplier always prefers to sell the high-quality product through the direct channel and the low-quality product through the indirect retailer channel. Meanwhile, the supplier and the retailer end up cooperating through the agency format. The authors also examine the impact of supply chain members’ strategies on their equilibrium decisions in terms of quality and price.