This paper explores the dynamics of manufacturer-retailer interactions, focusing on how manufacturers can strategically engage with retailers offering supplementary services. Some manufacturers have opened additional sales channel to gain more customers even as their downstream retailers offer services to develop more sales. Then, when should a manufacturer that has its own retailer sales channel use additional sales channel? And what level of service should the retailer provide? To answer the questions, we establish three different supply chain structures considering a service spillover effect: a single channel structure (S); a direct channel structure (D); a dual channel structure (T). Through a game-theoretic approach, we examine the manufacturer’s strategic choice of sales channel structure, the retailer’s preference for specific channel configurations, and the broader impact of service spillover effects on the overall supply chain. Our analysis demonstrates that the effectiveness of a manufacturer’s additional sales channel varies and is neither inherently beneficial to the manufacturer nor inherently detrimental to the service-providing retailer. The net impact depends on the service cost and the degree of competition between the channels. When the retailer offers insufficient service levels as a result of elevated service costs, the manufacturer opts to introduce a direct sales channel. And when the service cost is relatively small but the competition intensity between channels is too fierce, the manufacturer will choose the single channel structure. We further identify Pareto-efficient regions in which both the manufacturer and the service-providing retailer prefer adopting a dual-channel structure, particularly when service costs are low and the intensity of channel competition remains moderate.
