Supplier versus platform bundling: Optimal strategies under agency selling

This study explores the bundling decisions in a two-tier supply chain with an upstream supplier and a downstream platform and discusses the consequential implications of bundling on profit distribution between the supplier and the platform. We reveal how the supplier’s marginal cost and the platform’s commission rate determine bundling strategies when they are initiated at the upstream and downstream stages. When the marginal cost is moderate and the commission rate is high, both the supplier and the platform are incentivized to adopt bundling in order to optimize per-unit margins and overall channel demand. However, a high (resp. low or high) marginal cost and a low (resp. high) commission rate prompt only the supplier (resp. platform) to bundle. Furthermore, we highlight the critical role of the initiating party, i.e., supplier or platform, in profit allocation within the supply chain. Bundling, whether initiated by suppliers or platforms, invariably benefits suppliers. Interestingly, platform-initiated bundling yields greater supplier benefits by enabling higher retail prices without compromising demand. However, the platform’s gains from bundling are confined to specific cost configurations; for example, when the supplier’s cost is low, platform bundling can hurt the platform due to the discounted prices to counter the supplier’s high-pricing strategy. Furthermore, we find that both supplier- and platform-initiated bundling often increases the total supply chain profit, especially when the total supplier’s cost is relatively high.