Agency selling or reselling? Online selling format selection in the presence of customer strategic behavior

Abstract

Online sales have been widely used through two typical formats: agency selling and reselling. This study focuses on the interaction between the customer strategic behavior and channel members’ selling format selection. In this paper, we examine the scenarios without and with strategic customers, and then investigate the selling format preferences as well as the selling format of Pareto efficiency for the channel members. The results show that either agency selling or reselling can be a selling format of Pareto efficiency. Higher accessing fees and lower wholesale prices might lead to the agency selling as a selling format of Pareto efficiency, and lower accessing fees and higher wholesale prices might lead to the reselling as a selling format of Pareto efficiency. Interestingly, we demonstrate that the presence of customer strategic behavior might cause the manufacturer and intermediary to yield the end-seller position in the channel. Furthermore, we show that the customer strategic behavior would not necessarily guarantee the increase of the customers’ overall welfare, i.e., only when the deterministic demand level is higher than a threshold, the customer strategic behavior is beneficial, otherwise, the customer strategic behavior might cause harm to their overall welfare. Our main results are still valid with endogenous wholesale price and inventory cost, but an exogenous wholesale price is conductive for upstream sellers to reach cooperation and Pareto efficiency.