Selling models for platforms under service-sensitive demand

Abstract

Choosing an appropriate selling model for online retailing is a crucial problem faced by many e-commerce platforms and manufacturers. We examined three popular selling models on e-commerce platforms—the reselling model, the agency selling model, and the advertising service model—and examined the impact of product features, service efficiency, and interfirm power relationships on the choice of selling models. The problem was analyzed as a two-stage bargaining problem between a platform and a manufacturer under service-sensitive demand. We show that the choice of selling models is influenced by the interfirm power relationship, firms’ service efficiencies, and demand sensitivities. Specifically, when the manufacturer dominates the bargaining game, it is always beneficial to choose the agency selling model, except when the manufacturer has lower service efficiency than the platform and customer demand is extremely sensitive to service. In contrast, when the platform has the dominant bargaining power, it should always opt for the reselling model if it has better service efficiency than the manufacturer. As the price and service sensitivities of customer demand increase, their influences in determining the optimal selling model increase. The advertising service model becomes a viable option only when the manufacturer has superior service efficiency but less bargaining power than the platform and when there is low price sensitivity but high service sensitivity. In addition, we considered a two-part tariff selling model that includes a fixed membership fee and a unit transaction rate, and different direct sales costs for the platform under the three selling models.