Comparison between two inventory decision models for a two-echelon dual-channel distribution system

Business modes have been changing our life with more application of Internet in supply-chain/logistics distribution system. This paper investigates two inventory-decision models of a two-echelon dual-channel distribution system consists of a manufacturer with an Internet-enabled channel at the top echelon and a retailer store at the bottom echelon. Firstly, the joint production and pricing decisions are made with a centralized view, and then under the decentralized system, the manufacturer only operates an E-channel while the retailer operates a traditional channel, their own production/ordering and pricing are made to maximize their own expected profits with a Stackelberg game. Finally, some inferences are developed by comparisons between two decisions models, and a critical conclusion is that, a franchise outlet/two part tariff contract, designed by the manufacturer, as the Stackelberg game leader, can not ensure the coordination of dual-channel system under price-dependent demand and the condition that the retailer has pricing power for traditional channel.