Effects of online-to-offline spillovers on manufacturers' online sales mode selection

Numerous studies have confirmed the existence of two types of spillover effects (i.e., negative or positive spillover) from online sales to offline sales. The manufacturer's chosen strategy for sales mode can be challenging and complex when considering online sales efforts and spillover effects. With positive spillover, enhancing online sales efforts not only increases online demand but also stimulates offline demand. Conversely, with negative spillover, an increase in online sales efforts boosts online sales while simultaneously cannibalizing offline sales. This paper analyzes the manufacturer's choice between reselling and agency selling modes and investigates how both positive and negative spillover effects influence the manufacturer's choice when considering online sales efforts. We demonstrate that, with a significant positive spillover, agency selling is the manufacturer's optimal strategy. Counterintuitively, we show that the larger the negative spillover, the more the manufacturer prefers reselling. Furthermore, when the negative or positive spillover is relatively low, the manufacturer's decision regarding the sales mode depends on the commission rate. Moreover, our study highlights that the optimal selling strategy for the manufacturer is affected by consumers' sensitivity to online sales efforts. We also find that when considering online sales efforts, in scenarios where there is a significant positive spillover, the manufacturer is better off adopting agency selling. Meanwhile, the manufacturer may obtain negative profits from the online channel but can be compensated by the profits made from the offline channel. We extend the model to consider online sales efforts provided by the online platform in two selling modes, demonstrating the robustness of our main outcomes.