<p>This paper investigates the optimal pricing and marketing service level decisions for traditional and electronic retailers in a dual-channel retail market, considering cross-channel bidirectional information free-riding and consumer-driven market segmentation based on channel preferences. We analyze the impact of bidirectional information free-riding on channel strategies of both retailers and on overall market dynamics. In the model, bidirectional information free-riding is characterized by service free-riding and reference price effects. The findings indicate that the retailer with a larger market share should adopt a “high price—high service level” strategy, while the opposite holds for the retailer with a smaller market share. Attracting more consumers to visit physical stores enhances the profitability of traditional retailers. Through both service free-riding and reference price effects, bidirectional information free-riding intensifies competitive pressure, leading to a detrimental race to the bottom in terms of “low price and low service level”, thereby negatively affecting market health. When the service cost coefficient is low, retailers should pay greater attention to the implications of bidirectional information free-riding.</p>