Who Should Introduce the Third-Party Platform Channel Under Different Pricing Strategies?

Abstract

This work is motivated by the emergence of increasing cooperation between retailers and third-party (3P) platforms in China. When both the manufacturer and the retailer can sell through 3P platforms, a question arises: Who should use a 3P platform channel? Having the option of more than one channel, the manufacturer and the retailer may adopt different pricing strategies: a uniform pricing strategy (UP strategy) or differentiated pricing strategy (DP strategy). This study explores the impact of the pricing strategy on the selection of the channel structure and the joint decision of the channel structure and pricing strategy. We establish a Stackelberg game with the manufacturer being the leader and consider three channel structures: the manufacturer uses the 3P platform channel (M), the retailer uses the 3P platform channel (R) and both of them use the 3P platform channel (MR). We find that the pricing strategy has a huge impact on the channel structure selection. Specifically, the intuitive result is that the manufacturer prefers MR, but the retailer prefers R under the DP strategy. However, under the UP strategy, both the manufacturer and the retailer prefer MR (Pareto zone) if the channel competition and the agency fee are low and prefer R (Pareto zone) otherwise. When both the manufacturer and the retailer jointly determine the pricing strategy and the channel structure, for the manufacturer, (MR, DP) is his best choice when the agency fee is reasonable, while the retailer’s best choice may be (MR, UP) or (R, DP), depending on the channel competition and the agency fee. We also find that the inter-firm conflict can be reduced due to the manufacturer’s use of UP strategy.

Keywords: Supply chain management; channel structure selection; pricing strategy; third-party platform