Multiproduct Price Competition on a Retail Platform

Abstract

Many online retail platforms operate as both resellers and marketplaces. This paper examines price competition between a multiproduct manufacturer and a retail platform, where the manufacturer sells its products directly to consumers by paying a commission fee to the platform (i.e., agency selling), while wholesaling the products to the platform for resale. In examining the coopetition relationship between the manufacturer and the platform, we develop a game-theoretical model based on multinomial logit demand to characterize the firms' pricing behaviors and investigate the impact of agency selling on equilibrium outcomes. We demonstrate that each firm sets an equal retail margin for all products it sells, thereby extending the well-established result of an equal-margin policy in the literature to our platform setting. In addition, introducing agency selling on top of reselling is not always beneficial to either firm: the platform may be worse off when the commission rate is low, while the manufacturer may be worse off when both the commission rate and the wholesale margin are high.

Biography

Lusheng Shao is a Professor of Operations Management at The University of Melbourne. His research interests include competition in supply chains, contracts and incentives, and more recently, sustainable operations with a focus on agriculture and energy. Professor Shao’s research has been published in leading operations journals such as Operations Research, Manufacturing & Service Operations Management, and Production and Operations Management. He is currently an Associate Editor of Decision Sciences and an editorial board member of Production and Operations Management.