Supplier Encroachment in a Nonexclusive Reselling Channel

We consider a setting in which a nonexclusive reseller procures partially substitutable products from two suppliers, one of whom introduces a direct channel. We find that the presence of the second supplier alters many of the existing results about the interactions between a reseller and an encroaching supplier. For instance, the reseller's and the supply chain's benefit from the direct channel disappears when the product substitutability is sufficiently large. In addition, when the reseller is nonexclusive, the encroaching supplier may either sell exclusively through its direct channel even when that channel is less efficient than the reselling channel, or sell through both channels even when its direct channel is more efficient than the reselling channel. Neither of these would occur in an exclusive reselling environment with only one supplier.

Automated summary

The presence of a second supplier changes the dynamics between a reseller and an encroaching supplier, with the benefit from the direct channel diminishing as product substitutability increases. In a nonexclusive reselling environment, the encroaching supplier may choose to sell through its direct channel exclusively even if it is less efficient, or use both channels even if the direct channel is more efficient, scenarios not seen in an exclusive reselling environment with only one supplier.