Abstract: This paper introduces two types of preferential service investment (reciprocal & self-interest) of downstream retailers in a dual-channel supply chain that adopts both traditional distribution and online direct sales modes. On the premise that product sales are sensitive to both prices and service, product sales are formulated based on customer utility to explore the impact of retailer preference service investment on decisions and profits of retailer themselves and upstream suppliers. Revenue sharing contracts through direct sales channels and dual channels are proposed aiming at the positive and negative spillover effects of supplier revenue, respectively, caused by the two types of preferential service investment of retailers, to achieve Pareto improvement of both sides’ revenue. Simulation examples are used to verify the theoretical analysis and experiment design.

Key words: dual-channel supply chain, preferential service investment, interactive coordination, revenue sharing contracts