Title: Free riding and coordination in a dual-channel supply chain in e-commerce

Authors: Meiling Luo; Gang Li; T.C.E. Cheng

Addresses: School of Management, Xi'an Jiaotong University, The Key Lab of the Ministry of Education for Process Control and Efficiency Engineering, The State Key Lab for Manufacturing Systems Engineering, Xi'an, 710049, China ' School of Management, Xi'an Jiaotong University, The Key Lab of the Ministry of Education for Process Control and Efficiency Engineering, The State Key Lab for Manufacturing Systems Engineering, Xi'an, 710049, China ' Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong

Abstract: In a dual-channel supply chain, the bricks-and-mortar retailer provides customers with pre-sales services, while the manufacturer adds a direct online channel to enjoy a free ride on the pre-sales services provided by the retailer. Based on consumer utility theory, we first examine the free riding effect on the drivers of each firm's strategy, market sales, profitability, and supply chain performance. We find that the manufacturer's free riding behaviour has both positive and negative effects under some conditions, and the existence of the direct online channel is not necessarily detrimental to the retailer due to a reduction in the wholesale price and an enlargement of the market coverage. We propose a three-part tariff transfer payment scheme based on the retailer's order quantity and service level as a supply chain coordination mechanism. The results show that service level is improved and the coordination mechanism can achieve dual-channel coordination under some conditions.

Keywords: free riding effect; showrooming; competition; game theory; supply chain coordination; supply chain management; SCM; dual-channel supply chains; e-commerce; electronic commerce; consumer utility theory; corporate strategy; market sales; profitability; supply chain performance; tariff transfer payment; order quantity; service levels.

DOI: 10.1504/IJSTL.2016.076253

International Journal of Shipping and Transport Logistics, 2016 Vol.8 No.3, pp.223 - 249

Received: 20 Sep 2014
Accepted: 03 Feb 2015
Published online: 30 Apr 2016 *

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