Abstract：With the development of e-commerce and the growing tracing awareness of consumers, suppliers can encroach on the market by establishing direct channel and improve product traceability in order to increase their profits. This study regards the two-echelon supply chain composed of a supplier and a retailer as the research object and analyzes the market encroachment strategy of the supplier when he can improve the product traceability. By comparing the equilibrium results under three scenarios when the supplier commits not to encroach on market and encroaches on market with sequential and simultaneous quantity decision-making. Results show that the supplier’s encroachment strategy is affected by the sale cost of the direct channel and traceability cost. As the traceability cost increases, the possibility of supplier’s encroachment decreases. In sequential quantity decision-making scenario, the possibility of the encroachment is greater than that in simultaneous quantitative decision-making scenario, and the revenues of both parties in the supply chain in the sequential quantitative scenario are higher than those in the simultaneous quantitative scenario. The encroachment of the supplier may not always damage the revenue of the retailer. In sequential quantitative decision-making scenario, when the direct channel sales cost is at a medium level, the encroachment can weaken the double marginal effect and increase the retailer’s revenue.
