What type of contract should e-tailers offer sellers when facing internal competition

Yael Perlman ()
Additional contact information
Yael Perlman: Bar-Ilan University

Central European Journal of Operations Research, 2023, vol. 31, issue 4, No 1, 1009-1027

Abstract: Abstract This paper investigates whether an e-tailer should act as a platform and offer customers the product of a seller who can reach customers only through the e-tailer, and if so, what type of contract to offer the seller: a proportional commission based on revenue or a fixed fee per unit sold. The e-tailer also chooses the product line design: offer only her own product, offer only the outside seller’s product, or offer both her own product and the seller’s product. Intuitively, when the e-tailer’s product outperforms the seller’s product in terms of value-to-cost ratio, the e-tailer should not offer the seller’s product. However, non-intuitively, we also identify conditions in which the e-tailer remains better off not opening her platform to the seller even though the seller’s value-to-cost ratio is higher than the e-tailer’s and show how these conditions depends also on the consumers valuations. Regarding the type of contract to offer the seller, we find that most of the time, a proportional commission based on revenue is the best contract, guaranteeing the highest e-tailer profit. However, this is not always the case since there are situations when a fixed fee contract reduces the potential of internal competition.

Keywords: Supply-chain management; Online platform; Contract; Channel strategy (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10100-022-00818-0 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:cejnor:v:31:y:2023:i:4:d:10.1007_s10100-022-00818-0

Ordering information: This journal article can be ordered from
http://www.springer. ... search/journal/10100

DOI: 10.1007/s10100-022-00818-0

Access Statistics for this article

Central European Journal of Operations Research is currently edited by Ulrike Leopold-Wildburger

More articles in Central European Journal of Operations Research from Springer, Slovak Society for Operations Research, Hungarian Operational Research Society, Czech Society for Operations Research, Österr. Gesellschaft für Operations Research (ÖGOR), Slovenian Society Informatika - Section for Operational Research, Croatian Operational Research Society
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().