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A comparative study of entry mode options for E-commerce platforms and suppliers

Xin Wang,Xinyu Wang,Baoqin Yu,Shuhua Zhang

Published 2019 in Electronic Commerce Research and Applications

ABSTRACT

Abstract A supplier selling products on e-commerce platforms is able to increase sales volume and, hence, improve profits by benefitting from the promotion efforts and logistics service provided by an e-commerce platform. Accounting for a product’s reputation, we build a Stackelberg differential game model to study the optimal strategy between the e-commerce platform and the supplier. In our model, the supplier is offered two options of entry into the platform, namely, Fulfillment by Plan of Open Platform (FBP) and Sales on Plan of Open Platform (SOP). We then discuss, based on the results of numerical analysis, the supplier’s optimal entry mode and the dynamic pricing method associated with each mode. We find that the supplier would be more likely to choose the FBP mode if the product’s reputation is better or the commission rate the platform charges the supplier is higher. In our model, the e-commerce platform’s profit is always higher in the FBP than the SOP mode. Our results indicate that, to induce the supplier to choose FBP, the e-commerce platform should enhance its logistics service, put more efforts toward sales promotion, and attempt to lure suppliers with good reputations to participate.

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