Digital empowerment to improve the operational profitability in e-commerce supply chain

Abstract

Affected by the dramatic and complex changes in the digital economy, small-sized and medium-sized enterprises (SMEs) are facing challenges of digital transformation. Platform firms can provide significant advantages for SMEs by offering digital services. Focusing on the context of platform’s digital empowerment, we establish Stackelberg game models with one platform firm and multiple retailers, in order to explore the optimal decisions in both the decentralized and centralized settings. Moreover, we further propose a two-part tariff contract to coordinate the supply chain. We show that the number of downstream retailers plays a pivotal role in determining the platform’s empowerment incentive and the supply chain members’ performance. There exists a turning threshold value for the digital empowerment level with respect to the number of retailers, below which a higher level of digital empowerment can benefit the platform itself as well as retailers. However, when the number of retailers exceeds this threshold value, the growth rate of the digital empowerment level will slow down, which leads to a decrease in the retailer’s profit growth rate. Taking a two-part tariff contract into account, our study also proves that it can be used as an effective mechanism to coordinate such a supply chain, not only increasing the profits for the platform and retailers, but also improving the digital empowerment level.