Manufacturer's contract choice facing competing downstream online retail platforms

Abstract

Reseller contract and online marketplace contract are two typical supply chain contracts provided by Online retail platforms (ORPs) in online retailing. Manufacturers can either wholesale their products to an ORP using the traditional reseller contract or choose an agency selling contract to sell their products directly to consumers through an online marketplace provided by the ORP. Based on a game model, this paper studies the contract choice strategy for a monopoly manufacturer facing two competing downstream ORPs. The results show that the competition intensity between the ORPs and the order-fulfilment costs critically moderates the choice decision. Specifically, for a given competition intensity (level of order-fulfilment costs), with rising order-fulfilment costs (the downstream competition intensity), the preferred mode for the manufacturer switches from the pure online marketplace mode to the hybrid mode and then to the pure reseller mode. The intuition of this lies in the interaction of the transfer of the pricing rights and the responsibility for order fulfilment. Meanwhile, the conditions to ensure the dominant equilibrium in the competition of ORPs are analysed. Finally, we extend the basic model by relaxing the assumptions about the same proportion fee rate and the fixed order-fulfilment cost.