Abstract: In recent years, the rapid development of online retailing has attracted many manufacturers to establish e-commerce direct sales channel on the basis of traditional retail channel. However, in the supply chain the retailer has more consumer information than the manufacturer to predict market demand, the manufacturer often faces asymmetric demand information relative to the retailer when building direct sales channel. A supply chain composed of a manufacturer and a retailer is considered, where the retailer orders products from the manufacturer and sells to the end market, and the manufacturer has the incentive to establish direct sales channel to consumers. Three scenarios are modelled to investigate the manufacturer’s encroachment decision and the retailer's order decision, including no manufacturer encroachment scenario, manufacturer encroachment under symmetric information scenario and manufacturer encroachment under asymmetric information scenario. The results are further verified through numerical simulation.

Key words: asymmetric information; manufacturer encroachment; Signaling game; order decision