On channel coordination under price-dependent revenue-sharing: Can eBay's fee structure coordinate the channel

J. M. Chen, H. L. Cheng, I. C. Lin

Research output: Contribution to journalArticlepeer-review

20 Scopus citations

Abstract

This article deals with the problem of coordinating a vertically separated channel under consignment contracts with a price-dependent revenue-sharing (R-S) function. We consider the retailer being a channel leader who offers the vendor a leave-it-or-take-it contract, and the vendor being a price-setting firm who sells the one-of-a-kind goods through the exclusive channel. Under such a setting, the retailer decides on the term of R-S contract, and the vendor determines the retail price of the product. For each item sold, the retailer deducts an agreed-upon percentage from the price and remits the balance to the vendor. We model the decision-making of the two firms as a Stackelberg game, and carry out equilibrium analysis for both the centralized and decentralized regimes of the channel with consideration of three kinds of contracts: the fixed, the price-increasing, and the price-decreasing R-S percentage. Our analysis reveals that the contract with a price-decreasing R-S function, for example, the fee structure adopted by eBay.com, performs worse than the others. It persists in a consistent bias: the price-decreasing R-S induces the vendor to choose a higher price, and the retailer tends to receive a lower R-S percentage, which leads to less demand quantity, less profit, and channel inefficiency.

Original languageEnglish
Pages (from-to)1992-2001
Number of pages10
JournalJournal of the Operational Research Society
Volume62
Issue number11
DOIs
StatePublished - Nov 2011

Keywords

  • channel coordination
  • decision analysis
  • game theory
  • inventory
  • revenue-sharing

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