377 / 2024-04-24 20:40:01

Conservatism or Innovation? Strategy Selection for E-commerce Platforms

electronic commerce; online retailer; pricing; multisided platforms; own brand product; game theory;

The method whereby manufacturers sell products directly through a platform and pay a certain fee to the platform is referred to as agency selling. Its core distinction from the traditional reselling format lies in the attribution of pricing authority. The strategic choices made by the platform can trigger differential strategic responses from manufacturers, thereby altering the profit distribution of the platform across different channels. In this paper, we utilize a game-theoretic model to address a crucial question faced by the platform: under what circumstances does the platform opt for the agency selling instead of reselling within the dual role framework? How do the platform's strategic choices affect the supply chain and its members? We find that the reselling remains the optimal choice for the platform in most cases, whereas under the agency, the platform primarily benefits from a high proportion of manufacturer revenue sharing and stable self-operated earnings, both influenced by a combination of platform fees and selling cost. The platform only chooses the agency when platform fees are high and manufacturer costs are low. However, as manufacturer costs rise and platform fees decline, demand within the resale channel is positively stimulated, making the reselling increasingly preferable for the platform. This strategic preference is moderated by the intensity of channel competition, with the platform increasingly favoring the reselling as channel competition intensifies. Additionally, we identify a solution space wherein manufacturers benefit from the platform's strategic choices. At this juncture, the platform's dominant strategy aligns with manufacturer preferences, facilitating a mutually advantageous strategic dominance within the supply chain.