Abstract
In the recent years, the Internet has been developed rapidly such that a lot of companies can sell their own product on the Internet. By the e-tail channel, manufacturers can sell the product in a lower price. However, from the traditional retailers’ view, it establish the channel conflict to them. The purpose of this thesis is to discuss what strategy the retailer can be made in order to compete with the e-tail channel. In the thesis, we will construct a linear demand model to describe the comparative advantage and the competition between the two channels and solve the problem by using Stackelberg Game Theory process. For short term analysis, we verify the equal pricing policy and we find that it can alleviate the channel conflict and improve the profit of the two channels. For long term analysis, we find out the conditions which are benefit to the retailer to promote his service level in a mathematical way. We also show that the retailer really improves his own profit by promoting the service level appropriately by several numerical experiments. Finally, some management insights will be also discussed in this thesis.