When it comes to the Internet, few topics receive more attention then Internet-generated channel conflict. While many factors have contributed to the rise in channel conflict, channel disintermediation ranks near the top of the list. Essentially a fancy term for the removal of firms from the value chain, disintermediation has resulted in the exclusion of some firms and a redistribution of key channel functions as firms specializing in specific functional areas replace traditional intermediaries (e.g., agents, and wholesalers). In fact, one cheerful e-commerce analyst goes so far as to suggest that "manufacturers and distributors face the possibility of eating their own children in order to survive" (informationweek.com). While the jury is still out with regard to who will be eaten, one thing is certain: Traditional value chain relationships and functions have been considerably altered by the Internet.

As is often the case with change, conflicts tend to arise because of the perception that there are winners and losers. For instance, when Compaq decided to enter the direct Internet sales market, existing dealers became understandably concerned (especially since direct sales prices were lower than dealer sales prices). To complicate matters further, Compaq soon realized that other Internet-only retailers were buying Compaq computers in quantity and reselling them online at prices that not only undercut brick and mortar dealers, but also Compaq's very own retail web site. Computer buyers were going to Compaq's web site and dealer store locations in order to kick the proverbial tires of new models and were then going online to make the actual purchase from the cut-rate e-tailers. In an attempt to avoid this free-rider problem, Compaq was forced to temporarily stop shipping units to Internet-only retailers.

In addition, as more and more customers go online to purchase goods and services, many traditional retailers and suppliers will continue to struggle with issues relating to how the Internet will impact product pricing, promotion, and distribution. Given that buyers now have access to an endless source of information about any number of goods and services, retailers and suppliers are beginning to concede that a shift in power is under way. The readings in this section are meant to provide us with a general understanding of how conflict is affecting the channel and how firms that occupy various positions in the value chain are trying to cope.