Online channel design in the presence of price self-matching: Self-operating or e-marketplace?

Abstract

Many traditional retailers become multi-channel retailers by establishing self-operated online channel or employing e-retailer's e-marketplace, and some multi-channel retailers adopt price self-matching to mitigate intense price competition in multi-channel retailing. Our goal in this research is to examine how the multi-channel retailer's online channel design interacts with its price self-matching strategy in a supply chain including a multi-channel retailer and an e-retailer. Our study demonstrates that adopting price self-matching does not necessarily benefit the multi-channel retailer. Moreover, price self-matching can greatly impact the performance of the multi-channel retailer's online channel design, for example, under some market conditions where the multi-channel retailer can benefit from price self-matching only if it employs the e-retailer's e-marketplace, the multi-channel retailer should design online channel according to the e-marketplace's commission rate; but under other market conditions, it should always establish self-operated online channel. Overall, only the strategy of establishing self-operated online channel and adopting price self-matching and the strategy of employing the e-retailer's e-marketplace and adopting price self-matching can help the two retailers achieve a win-win situation. Furthermore, we show that, interestingly, a more prominent disadvantage of the self-operated online channel's potential demand benefits not only the e-retailer but also the multi-channel retailer.