Optimal E-tailing channel structure and service contracting in the platform era

Today, many e-tailers sell through e-platforms. Some of them sell products through both their own direct-online (DO) sales channel and e-platforms, while some give up their own DO sales channel and sell solely through e-platforms. Motivated by the popularity of e-platforms, we explore in this paper the optimal channel selection and e-platform service contracting problem. We build analytical models to explore “when” an e-tailer should choose “which” channel structure. Based on the commonly-observed industrial practices, in the basic models, we derive the optimal e-platform service contract which is a revenue-sharing plus fixed fee (RSF) service contract. We establish the conditions under which the e-tailer’s optimal channel selection choice will also be optimal for the e-platform systems. To test robustness of the research findings, three extensions are examined. For the extended model with a separate manufacturer, as well as the extended analysis with a social welfare optimization objective, we reveal that all the findings in the basic models remain valid. However, when the e-tailer decides both product pricing and quality, we uncover that the RSF service contract fails to achieve robust systems optimization. We hence show how the use of a cost-sharing RSF service contract can help.