Optimal investment and coordination strategies for digital technology adoption in a dual-channel supply chain

Digitization has become a necessity. How upstream and downstream companies in the supply chain coordinate digital transformation is a challenge. To this end, this paper develops a dynamic differential game model that includes a single manufacturer and a single retailer, both of which can decide whether or not to invest in digital applications and thus classify them into Scenarios M and R. The result shows that, compared to the R model, in the M model, the manufacturer sets a higher wholesale price that will suppress the sales volume in the online channel, but its overall profit increase; adopting the M model may be more favorable to both parties, but for the retailer, there is a risk that the manufacturer may charge high wholesale prices. In contrast, for the manufacturer, the retailer has a free-riding behavior. Based on this, this paper proposes an improved model F, where the retailer shares a certain percentage of the investment cost of digital technology to incentivize the manufacturer to invest in digital technology and share information with the retailer. It shows that in this scenario, the supply chain participants realize a win-win situation and make the level of digital technology higher than in the previous two scenarios.