Logistics Service Openness Strategy of Online Platforms with Vertical Differentiation and Endogenous Service Level

Yihong Hu (), Yongrui Duan (), Shengnan Qu and Jiazhen Huo ()
Additional contact information
Yihong Hu: School of Economics and Management, Tongji University, Shanghai 200092, P. R. China
Yongrui Duan: School of Economics and Management, Tongji University, Shanghai 200092, P. R. China
Shengnan Qu: School of Economics and Management, Tongji University, Shanghai 200092, P. R. China
Jiazhen Huo: School of Economics and Management, Tongji University, Shanghai 200092, P. R. China

Asia-Pacific Journal of Operational Research (APJOR), 2024, vol. 41, issue 04, 1-35

Abstract: This paper explores the strategic motivation for a platform to open its superior logistics service to a third-party seller with an endogenous service level. We consider a Stackelberg game between the platform and the seller who sells products to consumers who perceive the platform’s product as having a higher value than the seller’s product. We characterize the equilibrium results in two schemes regarding opening or not opening the service and present conditions for the platform to open the service and the seller to accept the service. In equilibrium, the platform’s logistics service remains at the same level before and after opening. Particularly, we demonstrate that the motivation for the platform to open the service is not simply collecting extra revenue from the service but can be understood from mitigating price competition and securing its demand and price. We find that the platform is always willing to open the logistics system because it provides the platform an additional tool to manipulate the seller’s pricing behavior and therefore improves its own profit. With a high commission rate, the platform is even willing to subsidize the seller for using the logistics service. A Pareto improvement can be realized for two firms when consumers are highly sensitive to the service level. Consumers are worse off after service opening in most cases. Our analysis offers insights into the incentives of one retailer providing high-quality service for its rival when retailers differentiate in price and service.

Keywords: Supply chain management; logistics service; Stackelberg game; service competition; online platforms (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0217595923400225
Access to full text is restricted to subscribers

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:wsi:apjorx:v:41:y:2024:i:04:n:s0217595923400225

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0217595923400225

Access Statistics for this article

Asia-Pacific Journal of Operational Research (APJOR) is currently edited by Gongyun Zhao

More articles in Asia-Pacific Journal of Operational Research (APJOR) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().