How Should E-Commerce Platforms Subsidize Retailers with Logistics Constraints during an Epidemic Scenario? Considering Power Structure and Altruistic Preference

Yang Zhang,Bing Xu

doi:10.3390/jtaer16050095

Abstract

To maintain the sustainable development of a platform’s economy, e-commerce platforms put forward various subsidy programs to retailers selling on them during COVID-19. This paper investigates an e-commerce platform’s decision on subsidizing a retailer selling on it with logistics constraints during an epidemic scenario, with a focus on the role of power structure and altruistic preference. By constructing two Stackelberg game models, the research obtains the optimal subsidy under two power structures (i.e., the dominant platform and the weaker platform), respectively. The comparison between them shows that the conditions of the dominant platform giving subsidies (both altruistic preference and logistics constraints should be higher enough) are stricter than the weaker platform. Considering the same altruistic preference and logistics constraints, the optimal subsidy provided by the weaker platform should always be not less than the dominant platform. However, the weaker platform, surprisingly, can get more utility by lowering its altruistic preference voluntarily when the commission fee is low. No matter what the power structure is, the optimal subsidy increases with the logistics service coefficient and altruistic preference, and the dominant member’s profit/utility is not less than the weaker one, which confirms “the first mover advantage”. Finally, more managerial implications to the platform-retailer systems are discussed.

Highlights

The last 20 years have seen worldwide outbreaks of various epidemics such as severe acute respiratory syndrome (SARS) in 2002 and the 2014–2016 Ebolan epidemic in WestAfrica
A research reported by Paidai.com, a famous community for e-commerce industry in China, shows that during early COVID-19, more than 80% of e-commerce retailers’ revenue fall and 53.93% of retailers claim that the main difficulties are logistics constraints [7]
This paper further studies the effects of logistics service on the operational decisions of e-commerce platforms by introducing logistics constraints and altruistic preference to the subsidy decision of an ecommerce platform

Summary

Introduction

The last 20 years have seen worldwide outbreaks of various epidemics such as severe acute respiratory syndrome (SARS) in 2002 and the 2014–2016 Ebolan epidemic in WestAfrica. The last 20 years have seen worldwide outbreaks of various epidemics such as severe acute respiratory syndrome (SARS) in 2002 and the 2014–2016 Ebolan epidemic in West. The recent eruption of the COVID-19, in particular, was upgraded from an epidemic to a pandemic by the World Health Organization (WHO) in March 2020, because of its wide and severe impacts on various aspects of social development (e.g., health, economy, politics, and culture) all over the world. According to Worldometers, a well-known website updating real time world statistics, up to the 7th of April 133,015,276 people in the world caught COVID-19 and 2,885,894 of them have sadly died. Governments in various countries have responded to large epidemics such as COVID19 and the 2014–2016 Ebola epidemic in West African by restricting movement of people and trade [1,2]. E-commerce is deeply suffering from logistics constraints as well

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Conclusion