Should a supplier engage in the marketplace? an equilibrium analysis in a hybrid-format supply chain

You Zhao,Rui Hou

doi:10.1051/ro/2021122

Abstract

Recently, e-commerce platforms have been acting as both a reseller and a marketplace to serve consumers. This study considers a hybrid-format supply chain that consists of a supplier who sells a product through an intermediary by a wholesale price contract. In addition, the supplier can decide whether to accept the intermediary’s offer to engage in the marketplace (if the supplier accepts, then the agency fee should be paid to the intermediary). We develop a game-theoretic model to investigate the impact of supplier encroachment on the supply chain members. Then, we extend our basic model to check the robustness of our main results. Our results show that the supplier prefers to engage in the marketplace if the agency fee is low and the order fulfillment cost is relatively low, the intermediary benefits from the supplier encroachment if the agency fee is relatively low, and consumers always benefit from encroachment. Interestingly, we show that an increase in channel substitutability leads to raising the supplier’s willingness to adopt an encroachment strategy. Our findings contribute to the online marketplace literature by providing valuable insights into the operation management of online marketplaces.

Highlights

With the development of information technology and the consequent growth in the popularity of the Internet, every aspect of life has been undergoing radical changes
We show that the equilibrium profits for the supplier, intermediary, and entire supply chain are all monotonically decreasing in channel substitutability but increasing in agency fee
In the case of simultaneous encroachment, we find that the supplier is more likely to encroach under sequential decisions rather than simultaneous quantity decisions; under price competition, we show that the intermediary benefits from supplier encroachment if the agency fee is moderate and the channel substitutability is low, or both the agency fee and the channel substitutability are relatively high

Summary

Introduction

With the development of information technology and the consequent growth in the popularity of the Internet, every aspect of life has been undergoing radical changes. Shopping via online trading platforms, that is online intermediaries, such as “Taobao,” “Amazon,” and “Tmall,” has greatly facilitated our everyday. An online intermediary platform purchases a product at a wholesale price and resells it to the end market (e.g., BsetBuy.com) at a retail price. Consider that six major publishers sell e-books through an agency mode, while Amazon simultaneously distributes e-books through a wholesale mode with the help of the Internet. Amazon controls e-books, and the way people read e-books, further increasing its market share

Results

Discussion

Conclusion