An Economic Analysis of Raising thr Buyer’s Burden in the e-Commerce Market: The Completion of Delivery Networks and Platform Differentiation

Abstract

Purpose – Platforms have been enhancing delivery networks for faster and cheaper delivery, resulting in nationwide coverage. It has been observed recently that platforms raise buyer fees and the share of delivery cost, seemingly damaging the buyer group. This paper aims to analyze economic relationships between homing structure , pricing schedule, and delivery cost to understand unfavorable actions toward buyers. Design/Methodology/Approach – We set up a platform competition model based on the Hotelling location model, and characterize a symmetric Nash equilibrium. Two platforms intermediate two groups and charge fees, single-homing a buyer group and a multi-homing seller group in a one-unit-long city. Findings – A drop in delivery cost increases both the seller and buyer surpluses. Platforms with first degree price discriminatory fees can absorb the entire surplus from a multi-homing seller. By contrast, platforms need to lower the uniform fee on single-homing buyers in order to poach. A greater share of delivery cost on the buyer side increases both the seller and buyer fees, and thus increase the platform’s profit. Research Implications – A greater share of delivery cost on buyer's side yields two positive effects for platforms. Sellers with lower delivery cost burdens enjoy a greater surplus, but eventually see a higher fee by platforms. Buyers facing greater delivery costs realize platforms are more differentiated horizontally, which shows inelastic demand for the fee, which brings less competition between platforms.