A perspective on supplier encroachment in the era of e-commerce

The rapid development of e-commerce has created unprecedented opportunities for easy and vast access to customers. A by-product of this trend is that many suppliers have encroached upon the retail market by establishing their own online channels with which they can sell products directly to final consumers. Conventional wisdom suggests that supplier encroachment is detrimental to the incumbent retailer and may go against the improvement of system performance overall. In an earlier paper, we derived conditions under which supplier encroachment may lead to a “win-win” outcome for the supplier and the retailer and thus improve system profit. This is contingent upon the sales efficiency of the online channel, the supplier's channel power, and how much benefits the online channel can obtain from the retail channel due to service spillovers. These findings can be further verified by considering key elements such as market uncertainty, multi-sourcing, and capacity constraints.