“Fulfilled by Amazon”: A Strategic Perspective of Competition at the e-Commerce Platform

Guoming Lai (), Huihui Liu (), Wenqiang Xiao () and Xinyi Zhao ()
Additional contact information
Guoming Lai: The University of Texas at Austin, Austin, Texas 78712
Huihui Liu: China University of Petroleum (Beijing), Beijing 102200, China
Wenqiang Xiao: New York University, New York, New York 10012
Xinyi Zhao: New York University, New York, New York 10012

Manufacturing & Service Operations Management, 2022, vol. 24, issue 3, 1406-1420

Abstract: Problem definition : This paper examines the economic effects of the fulfillment services offered by Amazon (FBA) to the third-party sellers on its retail platform. Academic/practical relevance : Logistics is critical for e-commerce. It is intriguing that the third-party sellers that use FBA may directly compete with Amazon. By FBA, their service levels are substantially improved and so is their competitiveness. Such a phenomenon has been little investigated in prior literature. Methodology : We develop a strategic competition model where Amazon and a representative third-party seller engage in both price and service competition. Results : Interestingly, we find that although FBA may intensify the service competition between Amazon and the third-party seller, it can mitigate their price competition besides the direct revenue Amazon collects from the service. The latter effects dominate the former when the cross-service sensitivity of the consumers is either sufficiently low or sufficiently high. Therefore, not only the third-party sellers but also Amazon may benefit from FBA. Moreover, because the sales of Amazon’s products may increase because of FBA, its OEM (original equipment manufacturer) supplier may gain from FBA also. These findings extend to the settings where the third-party seller is Amazon’s OEM supplier, cross-price and cross-service sensitivities are correlated, or the parties set their retail prices sequentially. Managerial implications : Our analysis provides insights about when FBA is more likely to be beneficial and when it can be harmful. They are useful for understanding the impacts of FBA on both Amazon and the third-party sellers.

Keywords: FBA; e-commerce platform; price and service competition (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/msom.2022.1078 (application/pdf)

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:inm:ormsom:v:24:y:2022:i:3:p:1406-1420

Access Statistics for this article

More articles in Manufacturing & Service Operations Management from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().