Abstract: The impacting of product substitution degree on supply chain cross selecting under different wholesale price is studied. Considering a supply chain system with two manufacturers and two retailers, distribution channel selecting and equilibrium outcome under the manufacturer sets a common wholesale price and different wholesale price for the two retailers are analyzed respectively. The results show that cross selecting will happen when the manufacturer sets a common wholesale price for the two retailers and substitutability is relatively low. The manufacturer prefers an exclusive arrangement with a retailer and cross selecting will not happen when the two products are highly substitutable. When wholesale price discrimination is allowed and the substitutability is relatively low, bi-directional cross selecting will happen. The decentralized manufacturer never uses the integrated retailer exclusively at equilibrium. Finally, the research results are verified by a case.

Key words: supply chain, substitutable product, hybrid distribution channel, cross selecting, equilibrium analysis