Platform or Wholesale? Different Implications for Retailers of Online Product

Young Kwark (), Jianqing Chen () and Srinivasan Raghunathan ()
Additional contact information
Young Kwark: Warrington College of Business Administration, University of Florida
Jianqing Chen: Jindal School of Management, The University of Texas at Dallas
Srinivasan Raghunathan: Jindal School of Management, The University of Texas at Dallas

No 13-14, Working Papers from NET Institute

Abstract: Online retailing is dominated by a channel structure in which a retailer either buys products from competing manufacturers and resells to consumers (wholesale scheme) or lets manufacturers directly sell to consumers on its platform for a commission (platform scheme), and is characterized by easy access to product reviews to facilitate consumers' purchase decisions. We study how different types of information revealed by reviews affect the retailer under the wholesale scheme and platform scheme. We find that information provided by reviews on quality dimension homogenizes consumers' perceived utility differences between products and increases upstream competition, which benefits the retailer under the wholesale scheme but hurts the retailer under the platform scheme. Information provided by reviews on fit dimension heterogenizes consumers' estimated fits to products and softens upstream competition, which hurts the retailer under the wholesale scheme and benefits the retailer under the platform scheme. Together, we demonstrate that the quality information and fit information play very different roles in changing upstream competition, and whether the retailer benefits from reviews critically depends on its pricing scheme choice.

Keywords: Online Product Reviews; Pricing Scheme; Competition (search for similar items in EconPapers)
JEL-codes: D83 L11 L15 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2013-09
New Economics Papers: this item is included in nep-com, nep-ict, nep-ind, nep-mkt and nep-net
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