'Fulfilled by Amazon': A Strategic Perspective of Competition at the E-commerce Platform

24 Pages Posted: 30 Oct 2018

See all articles by Guoming Lai

Guoming Lai

University of Texas at Austin - Red McCombs School of Business

Huihui Liu

China University of Petroleum, Beijng - Academy of Chinese Energy Strategy

Wenqiang Xiao

New York University (NYU) - Department of Information, Operations, and Management Sciences

Date Written: October 22, 2018

Abstract

This paper examines the economic effects of the fulfillment services offered by Amazon (FBA) to the third-party sellers on its retail platform (Amazon 2018). Logistics is critical for e-commerce. By FBA, the service levels of the third-party sellers are substantially improved, and so is their competitiveness. We develop a strategic competition model to understand why Amazon is willing to provide such services to its potential competitors. Interestingly, we find that although FBA may intensify the service competition, it can mitigate the price competition, besides the direct revenue Amazon collects from the services. 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 can benefit from FBA. Moreover, since the sales of Amazon's products may increase due to FBA, its OEM suppliers can gain from FBA too. This finding extends to the setting where Amazon's OEM suppliers may strategically adjust their wholesale prices in response to the change of the downstream competition due to FBA. In fact, this wholesale price effect can help Amazon when FBA is detrimental given that the suppliers may lower their wholesale prices. Of course, it can also reduce the benefit of FBA for Amazon when the suppliers increase their wholesale prices.

Suggested Citation

Lai, Guoming and Liu, Huihui and Xiao, Wenqiang, 'Fulfilled by Amazon': A Strategic Perspective of Competition at the E-commerce Platform (October 22, 2018). Available at SSRN: https://ssrn.com/abstract=3270958 or http://dx.doi.org/10.2139/ssrn.3270958

Guoming Lai (Contact Author)

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States

Huihui Liu

China University of Petroleum, Beijng - Academy of Chinese Energy Strategy ( email )

18 Fuxue Road
Changping
Beijing, 102249
China

Wenqiang Xiao

New York University (NYU) - Department of Information, Operations, and Management Sciences ( email )

44 West Fourth Street
New York, NY 10012
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
493
Abstract Views
1,658
rank
62,295
PlumX Metrics