Abstract
Motivated by the enormous business success of E-tailers and their distinct business strategies, this paper analyzes the characteristics of dual online channel competition and the fundamental willingness of an E-tailer to open its marketplace to other retailers while at the same time competing with them. We build game theory models to study the dual-channel competition between an incumbent E-tailer and other online retailers under different supply chain structures. Either the manufacturer or authorized third-party retailers can start an online store in the E-tailer’s marketplace. The results show that the transaction fee charged by the platform and the service level provided to customers play significant roles in deciding the marketplace business strategy—the E-tailer faces complicated issues when these two factors fluctuate. A pure strategy of raising the transaction fee may not always be beneficial and a competitor’s superior service level may help to enhance a rival’s sales price. In the expanded research, dual online channel competition with an unauthorized third-party retailer, which is common in the online marketplace, is also examined.
Highlights
The global retail sales volume reached 23.956 trillion dollars in 2018, among which the sales volume of e-commerce retailers reached 2.928 trillion dollars, accounting for 12.2% of the global retail sales volume; this value is expected to reach 4.206 trillion dollars in 2020 [1]
Our results show that the transaction fee charged by the platform and the service level provided to customers play significant roles in deciding the marketplace business strategy—an E-tailer faces a complicated dilemma when these two factors fluctuate
Based on the three-dimensional Figure 2, the equilibrium result affected by the transaction fee and the manufacturer’s service level is shown
Summary
The global retail sales volume reached 23.956 trillion dollars in 2018, among which the sales volume of e-commerce retailers reached 2.928 trillion dollars, accounting for 12.2% of the global retail sales volume; this value is expected to reach 4.206 trillion dollars in 2020 [1]. JD.com’s logistics network has a successful reputation It serves JD.com’s E-tailer business and provides order fulfillment services to the manufacturers and third-party retailers. Manufacturers and third-party sellers can sell their products directly to consumers at the expense of a transaction fee per sale to the platform. Our results show that the transaction fee charged by the platform and the service level provided to customers play significant roles in deciding the marketplace business strategy—an E-tailer faces a complicated dilemma when these two factors fluctuate. A pure strategy of raising the transaction fee may not always be beneficial and a competitor’s better service level may help to enhance a rival’s sales price These results offer inspiring insights that could provide a theoretical explanation for the existence of various e-commerce business modes and mechanisms.
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