Offline supplementary service strategies for the online marketplace: Third-party service or marketplace service?

Abstract

Offline supplementary service that supports and enhances the core product is one of the key factors leading to the success of online sellers and the online marketplace. We explore the optimal supplementary service strategies for the online seller and online marketplace. We consider three kinds of supplementary service, namely unauthorised service (UAS), third-party authorised service (TAS), and marketplace authorised service (MAS). We identify that the marginal cost-revenue ratio (MCRR) shapes the service strategies of the online seller and marketplace. The seller prefers TAS when the MCRR is low but prefers UAS if it is high. However, when the MCRR is moderate, the seller provides both UAS and TAS simultaneously. In addition, we show that the marketplace offers MAS to the seller when the commission rate is relatively low or relatively high. The offering of MAS results in a win–win outcome for the seller and marketplace, and engenders a subsidising effect for the seller and consumer, as well as a revenue-enhancement effect for the marketplace. Interestingly, we find that a higher commission rate not only decreases the selling price but also increases the demand for the product-MAS bundle.