The value of horizontal cooperation in online retail channels

Abstract

Abstract In this study, we consider a decentralized supply chain that consists of a manufacturer and two online retailers. The manufacturer sells a product through the two competing online retailers. The two retailers have their own private markets. One of the online retailers cooperates with the manufacturer under the wholesale scheme, whereas the other cooperates with the manufacturer under the platform scheme. In addition to the vertical cooperation with the manufacturer, the platform-scheme retailer also shares the platform with the other retailer and practices horizontal cooperation. The main objective of our study is to examine the value of this horizontal cooperation behavior. The results show that the horizontal cooperation has the value of promoting channel coordination. The horizontal cooperation can be established when the private market of the platform-scheme retailer is at an intermediate level. When a sufficiently high proportion of customers switch to the platform-scheme retailer’s platform, a sufficiently small size of the private market of the platform-scheme retailer can also promote horizontal cooperation. In addition, on improving the performance of the entire supply chain, the value of horizontal cooperation can be enhanced under more fierce competition in the market. We compare two types of platform fee: per-transaction fee and proportional fees; the results show that using a different platform fee has no influence on the main results of horizontal cooperation.