An analysis of price, service and commission rate decisions in online sales made through E-commerce platforms

Abstract

E-commerce platforms provide different companies a sales platform to access global markets. The relationship between the e-commerce platform and the companies making online sales through the e-commerce platform creates several challenges. Competition between the sellers and the coordination efforts of the e-commerce platform managers lead to different pricing, service level and commission decisions in this system. We consider a system that includes two sellers that make online sales of the same product through the same e-commerce platform, by paying a certain commission rate from their sales revenues to the e-commerce platform. The demand of the sellers in this system can be altered by changing the prices or by providing different service levels. Since the service in these systems can be provided by either the sellers themselves or by the e-commerce platform, we analyze both settings and compare their results with each other. We analyze the pricing, service level and commission rate decisions considering different settings using game theoretic models. We determine the optimal decisions and corresponding system results through analytical analysis and also by detailed numerical experiments. We also investigate the effects of the parameters on the system results. Our findings show that competition between the sellers benefit the e-commerce platform, and the sellers can increase their profits if they can coordinate their operations. In addition, we determine the characteristics of the services and the conditions of the system for which it is better for the e-commerce platform to provide the service instead of the sellers themselves.