Economic Analysis of the Supplier-Reseller Symbiotic Competition in an Online Distribution Business

The Internet brings suppliers unprecedented opportunity of selling directly to consumers, a trend predicted as disintermediation (Malone et al. 1987). However, the coexistence of online reseller channels and direct channels leads to a subtle relationship between suppliers and online resellers, that is, the two parties cooperate as well as compete with each other. In this paper, we build a game-theoretical model to examine the relationship of symbiotic competition between a supplier and a reseller, in which while the supplier relies upon the reseller in distribution, she also competes with the reseller. We further compare possible mechanisms for the supplier to control the symbiotic competition (i.e., the low-price guarantee and the capacity control mechanism). Both mechanisms are shown to reduce the channel conflicts and benefit the supplier. The capacity control mechanism provides the supplier a competitive advantage over the reseller and consequently the maximum profit. The related IT/IS techniques and information systems adoption issue are also discussed.