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Should an online manufacturer partner with a competing or noncompeting retailer for physical showrooms?
Author(s) -
Dan Bin,
Zhang Haiyue,
Zhang Xumei,
Guan Zili,
Zhang Shuguang
Publication year - 2021
Publication title -
international transactions in operational research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.032
H-Index - 52
eISSN - 1475-3995
pISSN - 0969-6016
DOI - 10.1111/itor.12910
Subject(s) - spillover effect , competition (biology) , business , product (mathematics) , value (mathematics) , advertising , marketing , industrial organization , commerce , microeconomics , economics , computer science , ecology , geometry , mathematics , machine learning , biology
Abstract More and more online manufacturers collaborate with offline retailers who provide retail services to showcase products in offline retailers’ stores and feature the stores as physical showrooms. Since offline retailers may be noncompeting or competing depending on the product they sell, we investigate two collaboration strategies. Our results show that product competition causes the decreased demand that is realized through physical showroom (negative competition effect) and the increased demand to buy online directly (positive spillover effect) for the online manufacturer. When the positive spillover effect dominates the negative competition effect, the online manufacturer prefers to partner with the competing retailer and strategically sets a high price. Interestingly, the online manufacturer's willingness to partner with the competing retailer may increase with competing product value. Besides, the online manufacturer may benefit from the increased value of the competing product and the increased commission that is paid to the retailer under product competition.