Establishing a dual food supply chain for organic products in the presence of showrooming – A game theoretic analysis

This study considers a retailer and a direct supplier (farmer) facing the strategic decision of whether to interact through a dual channel or to compete by selling different but comparable products. Consumers perceive the supplier's product as being of higher quality (e.g., an organic product as opposed to a conventional product, which is offered by the retailer) and the retailer as offering a superior service experience. In the dual-channel market, the retailer also offers the supplier's product, enabling customers to enjoy both higher quality and superior service. We assume that consumers are heterogeneous in their valuations of service and product quality. We consider the effects of showrooming and find that there are certain showrooming levels at which a retailer chooses to opt out of the dual channel despite that decision being detrimental to both parties. A strategic contract allows the parties to avoid this type of prisoner's dilemma. Our model can serve as a managerial decision tool for retailers and suppliers to evaluate whether it is worthwhile engaging in dual-channel collaboration and to assess the broader effects of showrooming in the markets in which they operate.