Impact of vendor preferences on Commission Policy of E-Commerce platform

Abstract

Listen

Translate article

In the prevalent online marketplaces, vendors manage daily operations while e-commerce platforms (EPs) that provide auxiliary services and charge commission fees. Two commission policies are examined in this article: Fixed Commission Policy (FCP), involving a fixed usage fee, and Ordinary Commission Policy (OCP), incorporating an additional fee proportional to sales revenue alongside the fixed usage fee, with this proportion referred to as the commission rate. We develop a two-stage game-theoretical model of an e-commerce supply chain, wherein the EP sets the commission policy and a risk-sensitive vendor determines its stock level. The vendor's risk attitude is characterized by three key preferences: reference preference, utility weight preference, and loss aversion preference. Under reasonable assumptions, we establish the existence and uniqueness of the game equilibrium, yielding several key insights: (i) Vendor preferences significantly influence the commission policy, with reference preference being central in shaping the optimal commission rate. Specifically, while the FCP is optimal for risk-neutral vendors, it may not be suitable when vendors are risk-sensitive. (ii) The ratio of unit cost to retail price is the primary driver of variations in optimal commission rate. Moreover, the optimal commission rate tends to decrease as this ratio increases. (iii) In the presence of risk sensitivity, a commission policy maximizing the EP's profit can lead to Pareto improvement compared to one aimed at centralized profit maximization. Our analysis offers valuable insights into the design of commission policies for EPs, providing credible explanations for various economic phenomena associated with these policies in e-commerce practices.