This study aims to establish a model of traditional retailers' horizontal merger based on the dual-channel supply chain of product differentiation, and analyze the decision of merger. The study shows that if the profit is bigger after merging, the threshold of synergy from lower to higher level is traditional retailers, social welfare, manufacturer and consumer surplus. When the synergy reaches a certain positive threshold, the merger will help to ease the channel conflict and benefit all parties. The increase in the degree of product differentiation between traditional channels and the growth in the market share of electronic channels are beneficial for manufacturers, consumers and social welfare to make a profit from the merger. On the contrary condition, it will benefit the traditional retailers.