Benefiting the Online Multi-brand Retailer: The Impact of Supplier's Direct Channel on Wholesale Market Competition

In ecommerce, a product/service supplier with an Internet direct channel can sell through both its own direct channel and independent online retailers’ sites. The competition between the direct channel and the independent retailer’s channel has received significant research attention, however, little has been investigated on the impact of direct channel on the competition in wholesale market when the independent retailer carries multiple brands. We built a model in which two suppliers, one with a direct channel and the other without, both sell through a common retailer and compete in offering trade deal to the retailer. We find that the presence of the direct channel can make the supplier without a direct channel become more aggressive in offering large trade deal and sometimes benefit the independent retailer. The result helps explain why the current growth of many major online intermediaries is largely driven by small sellers without significant online presence.