374 / 2024-04-24 20:24:06

Channel Structures in Electronic Retailing with Demand Uncertainty and Retail Competition

retail competition; price-setting newsvendor; demand uncertainty; channel structure; inventory pooling

Risk-sharing characteristics of agency and reselling format play a key role in determining the selling format in online retailing with stochastic demand. Pooling two agencies' inventory into the manufacturer's warehouse can reduce aggregate demand uncertainty, which seems to provide more incentives for retailers to choose the agency selling format. Using a competitive price-setting newsvendor model, we consider three channel structures (i.e., pure reselling (RR), hybrid (AR), and pure agency selling (AA)), and investigate the retailers' optimal channel structure choice and optimal pricing and inventory decisions. We find that both retailers tend to choose reselling format if and only if the demand volatility is relatively low; otherwise, both retailers prefer to provide marketplace service. Interestingly, the inventory pooling effect will drive both retailers to choose the agency selling format.  However, market competition among retailers has greatly mitigated the incentives for retailers to choose the agency selling format.

 Meanwhile, we find that the inventory pool effect of the AA structure can replace the role of the AR structure in buffer competition and risk-sharing to a certain extent.

 Under certain conditions, the AA and RR channel structure is an equilibrium choice for retailers, and this choice is also beneficial to the manufacturer.