395 / 2024-04-24 22:07:56

Profit Margin Guarantee Contract in Online Retailing with Dual Channel

profit-margin-guarantee contract, dual-channel structure, pricing

With the growth of online retailing, few e-commerce platforms with large market share have emerged. Some of them require manufacturers to provide a profit-margin-guarantee contract to ensure that their profit margin from reselling does not fall below a certain value. Intuitively, the profit-margin-guarantee contract is a way for e-commerce platforms to use their market power to obtain a profit guarantee, which would likely hurt manufacturer and benefit the e-commerce platform. We construct a supply chain consisting of a manufacturer and an e-commerce platform to study the impact of profit-margin-guarantee contract under a dual-channel, in which manufacturer sales through agency selling channel and e-commerce sales through reselling channel. Interestingly, our analyses show that manufacturer does not always lose and e-commerce platform does not always gain, because manufacturer can strategically trigger profit-margin-guarantee contract by setting a relatively large wholesale price. Depending on the channel competition intensify, the guaranteed profit margin rate and the commission rate, manufacturer and e-commerce platform will appear a win-win, win-lose, or lose-win outcome. Meanwhile, we find that in the presence of profit-margin-guarantee contract, the retail price of both manufacturer and platform decrease or at least stay unchanged, and the total sale volumes of product increase, which implies that consumer welfare improves. Therefore, the existence of profit-margin-guarantee contract under a dual channel may result in a win-win-win situation. Our results have managerial implications and complement relevant research.