Abstract：   

      Manufacturerstoday are increasingly adopting a dual channel to sell their products, i.e.,the traditional retailchannel and an online direct channel. Empirical studies have shown that servicequality (we focus onthe delivery lead time of the direct channel) even goes beyond product price asone of the major factors influencingconsumer acceptance of the direct channel. Delivery lead time has significanteffects on demand,profit, and pricing strategy. However, there is scant literature addressing thedecision on the promiseddelivery lead time of a direct channel and its impact on the manufacturer’s andretailer’s pricing decisions.To fill this gap, we examine the optimal decisions of delivery lead time andprices in a centralized anda decentralized dual-channel supply chain using the two-stage optimizationtechnique and Stackelberg game,and analyze the impacts of delivery lead time and customer acceptance of adirect channel onthe manufacturer’s and retailer’s pricing behaviors. We analytically show thatdelivery lead time stronglyinfluences the manufacturer’s and the retailer’s pricing strategies andprofits. Our numerical studiesreveal that the difference between the demand transfer ratios in the twochannels with respect todelivery lead time and direct sale price, customer acceptance of the directchannel, and product type havegreat effects on the lead time and pricing decisions.
1. Introduction 

      The Internethas significantly changed customers’ consumption patterns, and manufacturers’and retailers’ sale models. Customers today have increasinglyaccepted and become accustomed to purchasing products online, which promptsmore and more manufacturers to redesign their traditional sale channelstructures by engaging in direct sale in order to reach different customersegments that cannot be reached by the traditional retailchannel, expand market coverage, control sale price, and increase profits.Another reason for firms to expand to the online direct channel is thatthe Internet has substantially lowered the entry barrier (Choi, 2003). Online retail sales comprised about5.5% of all retail sales excluding travel in the USAin 2004 (Mangalindan, 2005; Dumrongsiri et al., 2008).According to one survey, about 42% of the top suppliers in avariety of industries such as IBM, Hewlett-Packard, Nike, Pioneer Electronics,Mattel, Estee Lauder, the former Compaq, Dell, and Cisco Systemare selling directly to consumers through the direct channel (Chiang et al., 2003; Tedeschi, 2000; Tsay and Agrawal,2004a,b; Wilder, 1999). 

     As more and more manufacturers areengaged in direct sale, their retailer partners resist the direct channelinitiative because they perceive that the direct channel is bound tocannibalize their market shares. In fact, this is only retailers’ psychologicalperception as studies have found that the introduction of thedirect channel is accompanied by a wholesale price reduction, which canactually benefit the retailers (Chiang et al., 2003). Most important ofall, customers prefer dual channels, which benefit them by providing moreshopping choices and lower prices, so manufacturers are forced to or voluntarilyintroduce direct channels as a strategic necessity. Retailers have alsorealized that it is unwise to boycott the direct channel and drive customers tobuy elsewhere (Hanover, 1999). So we suppose in this paper that dual-channelsupply chains already exist even in the presence of channel conflicts.