Simulation Study of Stochastic Channel Redistribution

Abstract

In this paper, we investigate sales redistribution between direct (i.e., “on-line”) and indirect channels when market demand exhibits a general stochastic pattern. We model the dynamics of the inter-channel diffusion by a system of two differential equations, and then obtain a simple analytical expression of stability conditions for channel redistribution when the market demand is deterministic. The stability conditions are unfortunately unattainable under more realistic market situations where the demand contains uncertain fluctuations. The results from an extensive simulation study indicate that the stability conditions obtained under deterministic market remain applicable to uncertain market situations, including the demand following a stochastic fluctuation and the diffusion parameters following a known distribution.