Manufacturers’online arms enlarge market sales for them, but pose a competitive threat to online retailers. While most prior literature concerns manufacturers’channel encroachment strategies, this paper investigates the online retailers’choice of selling model among the reseller model, the marketplace model, and the hybrid model when facing potential encroachment threats from manufacturers. Modelling the spillover effect between manufacturers’ online and offline channels, the impact of channel encroachment on the profits of both parties is analyzed under different business models. The results show that manufacturer encroachment is not always detrimental to online retailers. Under the reseller model, manufacturers will reduce wholesale prices when they build their online channels, and retailers can be better off when manufacturers’direct selling costs are high. Under the marketplace model and the hybrid model, adding direct sales channels can help alleviate manufacturers’pricing distortions caused by spillover effect. As a result, online retailers can be better off with a high positive or high negative spillover effect. In addition, online retailers should use the marketplace model under weak spillover effects and low direct sales costs, while opting for the reseller model (or the hybrid model) under extremely positive (or negative) spillover effects. The results cannot only provide guidance for online retailers to deal with manufacturer encroachment, but also offer decision support for manufacturers to introduce direct sales channels.