When can a manufacturer benefit from adding a direct sharing channel?

With the rapid development of sharing economy, the manufacturer has begun to establish direct shar-ing channels in addition to their existing distribution channels via independent retailers. Motivated by this business practice, this paper aims to answer the following questions: whether and when should a manufacturer establish a direct sharing channel? To this end, we first analyze a supply chain where a manufacturer distributes her product only through a retailer (the M-S Model), where we obtain the opti-mal retail price. Next, we consider the scenario where the manufacturer sets up a direct sharing channel in addition to the retail channel (the MR-S Model), where we obtain the optimal rental price and re-tail price. We then study the manufacturer's channel structure choice between the M-S and the MR-S models. Our main findings include the followings. First, the manufacturer may not always benefit from establishing a new sharing channel. The manufacturer will benefit only if the operating cost of sharing channel is low. However, when the operating cost of sharing channel is below a threshold, adding the sharing channel will decrease the profit at the retail channel, resulting in channel conflict. Second, only if the operating cost of sharing channel falls into a certain interval, the manufacturer's sharing channel will decrease the retailer's profit but increase the total supply chain profit. To avoid channel conflict, the two firms can adopt an appropriate sales reward contract so that both can benefit from the sharing channel. Lastly, when both the operating cost of sharing channel and the simultaneous rental rate of consumers are low, the manufacturer even needs to produce less if she establishes a new sharing channel. (c) 2023 Elsevier B.V. All rights reserved.

Automated summary

With the rapid development of sharing economy, manufacturers have started establishing direct sharing channels in addition to existing distribution channels. This paper examines when and why a manufacturer should establish a direct sharing channel. The findings suggest that the manufacturer may not always benefit from establishing a new sharing channel, and it depends on the operating cost. However, if the operating cost falls within a certain interval, the manufacturer's sharing channel can increase the overall supply chain profit but may decrease the retailer's profit.