How do e-commerce platforms and retailers implement discount pricing policies under consumers are strategic?

Abstract

In the era of the rapid development of e-commerce, many retailers choose to launch promotional activities to become consumers’ first choice for shopping. Since price discounts can greatly attract consumers, the e-commerce platforms have also begun to implement discount pricing. It is urgent for e-commerce platforms and retailers to formulate reasonable discount strategies to achieve sustainable business. In this paper, we construct a dynamic game model for implementing discount pricing on an e-commerce platform and two retailers, we study the market equilibrium between the two retailers and the e-commerce platform under various scenarios that considering consumers’ strategic waiting behavior and competition between the two retailers, we further discuss the effectiveness of retailer discount pricing and the double discount pricing of the platform and retailers. We show that the optimal pricing decreases as the difference in product quality narrows under both pricing strategies. Low-quality retailers implementing a double discount pricing strategy are in relatively higher demand only when the difference in product quality is small. High-quality retailers implementing the retailer discount pricing strategy are in relatively higher demand only when the product quality difference is large. Double discount pricing is desirable for both e-commerce platforms and retailers and can be used to effectively achieve Pareto improvement in the market by increasing their expected profit. Our results emphasize the role of product quality and the value of the double discount pricing strategy. The double discount pricing strategy weakens the profit advantage that retailers and platforms gain from it as the rebate intensity and rebate redemption rates increase.