Reselling or dual selling? The role of consumer-to-manufacturer e-commerce platforms' voluntary investment

Abstract

Recent years have witnessed e-commerce platforms that voluntarily invest in new digital technologies to help their suppliers reduce production costs. To examine its impact on channel structure, we develop a supply chain model consisting of a supplier and an e-commerce platform who purchases products from the supplier at a wholesale price and sells them to end markets. In addition, the supplier has the option to accept the marketplace by paying a commission fee charged by the platform. We show that the presence of voluntary investment on production improvement can overturn some classical insights from prior studies. For example, a higher marketplace commission fee can lead to a lower selling quantity in the marketplace, but a higher order quantity in the reselling channel under certain conditions. This stands in strict contrast to the opposite finding when the platform invests instead on demand enhancement. In addition, previous studies suggest that offering the supplier the marketplace option is beneficial to the supplier but is detrimental to the platform. However, with voluntary investment, the platform can benefit from allowing the supplier to encroach via the marketplace, and in some situations the supplier suffers from having such an option. We find that the commission fee and the production cost are two interacting forces steering equilibrium decisions for supply chain members, and we characterize the concise operating regimes for the channel structure choices on behalves of the supplier and the platform. A number of extensions are discussed, including product substitution level, investment cost structure, whether the quantity decisions are made simultaneously or sequentially, voluntary investment timing, and endogenous commission fee.