Abstract: In order to analyze the causes of channel conflict under B2C e-commerce where a manufacturer opens a direct Internet channel to compete directly with the traditional channel, a study is conducted on how to coordinate the two channels through contract design. A decision model is constructed based on the Game theory. With the model, channel equilibrium strategies are analyzed. Results show that, when a manufacturer opens an e-direct channel to have a dual-channel distribution system, the retailer′s profit is reduced. Hence, the manufacturer′s profit is enhanced and at the same time, channel conflict occurs. In order to avoid the channel conflict and coordinate the two channels, a modified contract of wholesale price is designed with e-channel price added by two-part tariff. In this way, the Pareto improvement of profit among the supply chain members is realized.