Quality and distribution channel selection on a hybrid platform

Abstract

We consider a supply chain with a manufacturer selling a product to consumers through a hybrid online platform. The platform offers the manufacturer (she) two channels (agency and reselling channels) to sell her product. The literature assumes that the manufacturer can choose to sell her product through either the agency channel or the reselling channel, whereas this study expands the literature by allowing the manufacturer to sell her product through two channels, which is common in practice. Specifically, we study the manufacturer’s distribution channel decision on a hybrid platform and explore the impact of product quality on this decision. We reveal that it is not optimal for the manufacturer to sell solely through the agency channel in quantity competition. In the short run, she chooses to sell through the two channels if product quality is low and solely through the reselling channel otherwise. The manufacturer’s channel decision may benefit the platform and consumers, leading to a win-win-win outcome if the quality level is intermediate or sufficiently high. In the long run, the manufacturer can flexibly adjust product quality. Our analysis shows that if the commission rate is low, the manufacturer chooses a low-quality level and sells via both channels. Otherwise, the manufacturer chooses a high level of quality and sells solely via the reselling channel. Compared with the short-run model, if the manufacturer is efficient in manufacturing a high-quality product, the quality decision enlarges the region where she sells solely through the reselling channel and the region where the platform benefits from the channel decision. Although the quality decision narrows the region where consumers benefit from the manufacturer’s channel decision, it nonetheless enlarges the region where the win-win-win outcome occurs.