Abstract: In this paper, we study the two-stage supply chain system consisting of one manufacturer and one traditional retailer. The manufacturer has the choice of adding electronic direct channel. However, the electronic channel has the risk of counterfeits. Stackelberg game method is used in this paper to analyze the channel strategy for brand goods manufacturer and the effects on the traditional retailer, furthermore, the changes of consumer surplus and social welfare. The results show that, only when the quality and market permeability of counterfeits are within a certain range, the brand goods manufacturer tends to add an electronic channel and operate in dual-channel to increase profits; but single channel is much better for brand goods manufacturer when the quality and market permeability of counterfeits beyond the scope. Nevertheless, when the counterfeits within the range，the consumer surplus and social welfare increase. More importantly, counterfeits in electronic channel aggravate the channel conflict. It is another important effect on damaging the traditional retailer's profits which is caused by the electronic direct channel.

Key words: counterfeits, brand goods, manufacturer, dual-channel