Modelling hybrid distribution channels: A game-theoretic analysis

Traditionally, firms use intermediaries to reach final consumers. More recently, some firms have chosen to rely exclusively on direct channels, bypassing all forms of intermediaries (e.g., Internet retailers). This paper looks at the firm's decision-making when hybrid channels exist (where the firm uses both direct and indirect channels). Using game theory, we compare the equilibria under the indirect and vertically integrated channels with the equilibrium under the hybrid channel with respect to the marketing decision variables, particularly pricing and profit distribution. Some results are quite surprising, and set up the benchmark comparisons for future work in this area.