Channel structure and differential pricing strategies in dual-channel e-retail considering e-platform business models

Abstract

Abstract Although online business has been growing for some time, third-party e-platforms and their impact on e-channels are an under-explored area in the literature on dual-channel supply chains. Considering different combinations of open and self-support e-platform, this paper develops dynamic game models in four dual-channel e-retail structures to study pricing strategies and channel preference for manufacturers. The results provide interesting insights. First, a manufacturer’s optimal prices vary in different e-channels. Second, e-retail prices on the self-support e-platform and open e-platform are both affected by the e-platform’s service quality and commission fee. Regardless of the channel structure, a better service quality by one e-platform leads to an increase in its own e-retail prices and forces the competing e-platform to either improve its service quality or take a lower price. Lastly and more importantly, we compare the manufacturer’s pricing strategies and performances in different dual-channel e-retail structures and identify its preferences. Specifically, if the commission fee is dynamic, we find that the manufacturer always prefers to use two e-channels provided by different e-platforms, and at least one of the e-channels is the self-support model, although it is a sub-optimal strategy.