Interaction between the introduction strategy of the third‐party online channel and the choice of online sales format

Abstract

AbstractOn the online platform of e‐tailers (e.g., Amazon), there are many third‐party retailers who can resell products by paying e‐tailers a platform usage fee. When e‐tailers sell manufacturers’ products through the agency selling or reselling format, manufacturers may also sell the products via the third‐party retailers, i.e., the third‐party online channel. Therefore, in an online retailing supply chain composed of a manufacturer, an e‐tailer ad a third‐party retailer, this paper employs game theory to study the interaction between the introduction strategy of such channel and the choice of online sales format. The results show that under the agency selling format, the manufacturer should always introduce the channel to reduce the loss caused by platform usage fee and the low sales efficiency; under the reselling format, if the platform fee rate is small, the manufacturer will introduce such channel because of benefiting from downstream competition brought by the channel, otherwise, vice versa. When the channel is introduced under both sales formats and the sales efficiency of the manufacturer is not very high or very low, with the discount factor of consumer utility in this channel being large, the e‐tailer should choose the reselling format even if the platform fee rate is large. In case the channel is introduced only under the agency selling format and the sales efficiency of the manufacturer is not very high or very low, even if the platform fee rate is very large, the e‐tailer should also choose the reselling format. These choices always benefit the manufacturer (i.e., two win‐win situations). Under the agency selling format, the third‐party retailer should always improve the utility gained from purchasing from this channel, but it should keep the utility at an appropriate level under the reselling format.