Coordination Between Manufacturer and Retailer in Multi-Channel Setting

The developments in e-commerce and logistics technologies have motivated manufacturers to establish a new channel for retailing directly. We consider the setting that a manufacturer operates an online store in addition to the existing retail channel. There are two segments of customers, the lower-end customers need only physical products and visit retailer´s store, while the high-end customers who need physical products and also need value added service will place orders via the internet. Manufacturer sells all the products to retailer at the wholesale price and informs the retailer to deliver the products to customers once receiving orders, namely retailer shares logistics service with manufacturer. In the setting that the manufacturer and the retailer are all risk neutral, we discuss the channel coordination through pricing strategies.