Abstract
Although suppliers can sell their goods on e-retailers’ e-platforms through either a wholesale or agency contract, suppliers that produce complementary goods and have different channel roles have been confused as to how to choose an optimal distribution contract. This paper aims to study this problem by considering the combined impacts of suppliers’ channel roles, e-retailer’s referral fees, goods’ differences in the level of complementarity and goods’ differences in potential demand. Our results show that, regardless of one supplier’s distribution contract choice, the other supplier always prefers agency contract, which is independent of two suppliers’ channel roles, the e-retailer’s referral fees, two goods’ differences in the level of complementarity and two goods’ differences in the potential demand. Moreover, when two suppliers use different distribution contracts to sell goods with different levels of complementarity on the same e-retailer’s e-platform, low-complementarity goods have a larger optimal retail price only if the two goods’ differences in the level of complementarity are sufficiently high, and the supplier can obtain more profits by producing low-complementarity goods regardless of the supplier’s distribution contract and channel role.
Highlights
E-platforms have been developing rapidly in the past few years, and an increasing number of consumers have begun purchasing goods from e-platforms
If the small supplier uses the W contract, the profit of the powerful supplier using the A contract decreases as the referral fees increase, while the profit of the powerful supplier using the W contract remains unchanged as the referral fees increase; the A contract is more beneficial to the powerful supplier than the W contract, but the A contract’s advantage decreases as the referral fees increase
Regardless of the small supplier’s distribution contract, the impact of the referral fees on the powerful supplier’s profit depends on the powerful supplier’s distribution contract; the powerful supplier should choose the A contract, and the A contract’s advantage is larger when the referral fees are relatively low than when the referral fees are relatively high
Summary
E-platforms have been developing rapidly in the past few years, and an increasing number of consumers have begun purchasing goods from e-platforms. Consumers in the U.S spent $601.75 billion on online shopping in 2019 (Site 2), and eMarketer predicted that. Many suppliers produce complementary goods and sell them on one e-retailer’s e-platform. One is an agency contract (A contract), where suppliers set their goods’ retail prices and sell the goods directly to consumers through the e-retailer’s e-platform but need to share a proportion of their sales revenue (referral fees) to the e-retailer [1,2,3], and the e-retailer charges different referral fees to suppliers that produce different categories of goods. The other is a wholesale contract (W contract), where suppliers wholesale their goods to the e-retailer that announces the retail prices and sells the goods to consumers on its e-platform [4,5,6]. An A contract makes the e-retailer charge referral fees to suppliers but enables it to lose the right to decide retail prices [7], and a W contract provides the e-retailer with the right to decide retail prices but makes it undertake the sales work [3]
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