Optimal selling format considering price discount strategy in live-streaming commerce

Abstract

This paper analytically investigates the channel choice problem and price discount strategy of a supply chain under the live-streaming context. In the existing literature of traditional e-commerce, it is assumed that a manufacturer sells through the retailer's reselling or agency selling format. As live-streaming services developed, firms leverage the influence of Internet celebrities and discount strategies in the live-streaming channel to attract new consumers who are never aware of the firms’ offerings. However, it is unclear that how the unique characteristics of live-streaming commerce affect the choice of selling formats and the optimal price discount strategy. We develop a game-theoretical model with two price schemes (i.e., committed price scheme and dynamic price scheme) where the decision-maker only decides on the live channel introduction in the first period. We first provide the thresholds at which decision-makers decide to adopt live-streaming selling. Second, we offer the optimal price discount rate and equilibrium outcomes for each selling format. The optimal price discount rate mainly depends on the uninformed consumers’ (UCs) valuation and informed consumers’ (ICs) proportion. Third, we solve the optimal selection of selling format for the retailer. The introduction of a live-streaming channel reduces the threshold that the retailer selects the agency selling format. Fourth, we compare the results of the committed price scheme and the dynamic price scheme. Findings show that decision-makers are more likely to offer a live channel promotion and raise the price of the traditional online channel under the dynamic price scheme. However, under the dynamic regular scheme, decision-makers tend to provide a deeper discount rate in the live channel, leading to a lower retail price in the live channel. Finally, we extend our model by considering a negotiated commission fee between the decision-maker and the third-party live streamer under different selling formats. Our study provides useful insights to managers to make the live-streaming channel adoption decision and make price discount decisions in supply chains with manufacturers selling through online retail.