Upstream information sharing in platform-based e-commerce with retail plan adjustment

Abstract

We examine the incentive of an e-commerce platform to share advanced market demand information with a seller offering an assortment of products on its platform. The platform can operate either as a reseller, setting retail prices, or as a marketplace provider, earning commission fees. The shared information comprises the preferences of the consumers who shop on the platform. With this shared information, the seller can adjust its retail plan according to revealed consumer preferences in each planning cycle. Our analysis revolves around three factors: market variability, the cost of adjusting the retail plan, and the intensity of in-platform competition faced by the seller. Our results indicate that in the reseller setting the platform can be either better off or worse off with information sharing, whereas in the commission fee setting the platform invariably benefits from information sharing. If the platform shares information, it is generally beneficial for consumers in the reseller setting but could be harmful in the commission fee setting. We propose a price ceiling mechanism to incentivize information sharing. Our findings reveal that this price ceiling mechanism is superior to the subsidy mechanism as it yields benefits for all parties – the seller, the platform, and consumers – through information sharing. These results offer valuable insights to e-commerce platforms regarding strategic decisions on information sharing services and contract design to ensure mutual benefits.