Order-Fulfillment Coalitions in a Hybrid E-Commerce Platform: Myopic versus Farsighted Stability

Abstract

This paper considers the order-fulfillment coalitions among an e-tailer and two third-party sellers in a hybrid e-commerce platform. The e-tailer uses a self-supported logistics system to fulfill the orders, and the seller can either use the former or turn to third-party logistics systems. By investigating the equilibrium order quantities, the strong preference relations, and the possible deviations for all the possible coalition structures, we discuss both myopic stability and farsighted stability for all the coalition structures. We find that if economies of scale are absent, fulfilling the orders independently is unique Nash stable and farsightedly stable; however, if alliances generate economies of scale, there may not exist Nash stable, but the farsightedly stable outcome always exists, which further depends on the interaction between the e-tailer’s order-fulfillment cost advantage and economies of scale. Further discussions on extremely high economies of scale and the proportional commission fee are also conducted.