Abstract: With the vigorous development of e-commerce, more and more manufacturers adopt dual- channel marketing to boost demand. However, many manufacturers may have insufficient production capacity due to shortage of fund, insufficient raw materials, equipment failure, complex process and other reasons. Under such circumstances, there is a need for capacity allocation between direct channels and retail channels. The most common allocation policy is that manufacturers give priority to their direct channel, which is called “capacity for direct-channel first” in this paper. Under this policy, the sales volume of both channels will be affected by the prices and capacity simultaneously. As a result, the pricing decisions and the performance of supply chain under this policy require an in-depth investigation. Motivated by this phenomenon, a pricing game model is built for dual-channel supply chains with limited capacity and the impact of “capacity for direct-channel first” policy is analyzed.

Key words: dual-channel supply chain; limited capacity; pricing game; direct-channel first