Strategic introduction of the showroom channel in a platform supply chain: how to balance cost inefficiency against information asymmetry

Abstract

To cope with the challenge caused by the lack of physical evaluation, many e-commerce platforms introduce a showroom channel, in which consumers can feel and touch products before purchasing. Based on this background, we consider there are two strategies of an e-commerce platform to introduce a showroom channel, i.e., self-build strategy and cooperation strategy. Then we build theoretical models by characterising cost inefficiency of self-build strategy and information asymmetry of cooperation strategy in the platform supply chain. Next, we derive the optimal decisions under different strategies, and investigate the advantage of different strategies. Last, we explore the strategic introduction of the showroom channel in the platform supply chain. We find the following results. (1) Under cooperation strategy, the platform can strategically design two different cooperation contracts to the retailer, i.e., full incentive contract and partial incentive contract. Moreover, the retailer may be hurt by a higher demand due to information asymmetry under cooperation strategy. (2) Self-build strategy generates information advantage and cooperation strategy brings channel advantage, which jointly affect the optimal showroom channel strategy of the platform. To be more specific, when high-type demand of the retailer is relatively high and reservation profit of the retailer is relatively low, channel advantage dominates information advantage, then the platform will choose cooperation strategy. (3) Under some conditions, the optimal strategy of the platform is not in line with the optimal ones of the whole supply chain. Then we design a side payment contract to achieve Pareto improvement.