Advertising strategies of one e-commerce platform and competitive sellers in a supply chain under agency mode

Abstract

As the internet traffic dividend disappears, the growth of e-commerce platforms slows and competition among sellers increases. We examine whether the sellers choose to cooperate with the e-commerce platform in advertising. This paper considers advertising strategies in a supply chain with one e-commerce platform and two competitive sellers, where each seller can choose either cooperative advertising or independent advertising in a strategic game. This paper shows that the cooperative advertising strategy is a unique Nash equilibrium. Only when a seller has a relatively high revenue share ratio in the cooperative venture, and competition with the other seller is low, will the seller obtain higher profits with cooperative advertising than independent advertising. After competition increases to a certain level, the sellers fall into the prisoner’s dilemma. Cooperative advertising can increase the profits of the platform. It is better for the platform to cooperate with two sellers than with only one seller. Besides, a seller’s market share can also impact its advertising strategy. Previous studies were mainly based on traditional supply chains in the wholesale mode where the platform acts as a retailer. Our paper considers the supply chains under the agency mode where sellers compete on price and advertising.