Equilibrium analysis for competing O2O supply chains with spillovers: Exogenous vs. endogenous consignment rates

Abstract

This paper studies the pricing and selling format selection problem for e-platforms in two competing online-to-offline (O2O) supply chains. Each supply chain consists of one manufacturer and an e-platform (or an online retailer), where each manufacturer can sell the product to the e-platform or directly to customers, depending on which selling format is adopted by e-platforms. Empirical evidence finds that the online sales of products would affect the sales of traditional offline channels (i.e., spillover effect). Our results show that the spillover effect would play a key role in the selection of selling formats and it always lowers the selling prices. Specifically, if the commission rate is exogenous, we find that when the degree of the negative cross-channel spillover is very low, the highest prices are observed under the agency selling format, followed by the hybrid selling format, and the reselling format has the lowest prices; and when the cross-channel spillover effect is negatively small or positive, the opposite results are true. If the commission rate is relatively low, it is always not beneficial for the two e-platforms to use the agency selling arrangement regardless of spillovers; when the commission rate is high, however, the selling format selection is closely associated with the spillover effect. We extend our model to the case in which the commission rate is endogenous. We find the highest prices in the reselling format, followed by the hybrid selling format and, finally, the agency selling format, and if the spillover effect is sufficiently positive, it is beneficial for the two e-platforms to employ the reselling format.