Consumer Rebates from E-Commerce Platforms and Multi-Channel Management of Third-Party Sellers

Abstract

This paper presents an examination of how the offering rebates to consumers from an e-commerce platform affects both pricing and multi-channel management of a third-party seller who distributes goods through the platform's online marketplace in addition to an independent offline retailer. The seller sells goods directly to consumers through the online channel, although it charges a wholesale price to the offline retailer. Online revenues are shared with the platform according to the royalty rate. We first consider a short-run model in which both royalty and rebate rates are given exogenously. When the platform issues consumer rebates at its own expense, greater rebates make the online channel more attractive not only to consumers, but also to third-party sellers. Consequently, an exogenous increase in the rebate rate makes the seller adjust its pricing to shift its profit center online, which benefits the online platform but hurts the offline retailer. By contrast, if consumer rebates are issued at the seller's expense, then the opposite occurs. That is, interestingly, greater rebates for online purchasing are beneficial to the offline retailer because the seller moves its profit center offline. Moreover, we address the long-run model in which the platform determines royalty and rebate rates endogenously. We show that a continuum of multiple equilibria exists with respect to these decisions, all of which produce an equal payoff for each firm. Lastly, we discuss how an e-commerce platform should utilize consumer rebates in a complementary way with its royalty rate decision in the face of demand uncertainty.