Recently, increasing number of successful e-tailers like Alibaba and eBay operate as an online marketplace. These marketplaces facilitate suppliers to sell directly to the end-users and take a commission fee for each sale. The commission fee is generally proportional to the price, (e.g. 0.2% ~ 5% in Tmall). Unlike the traditional reselling model where the suppliers set wholesale prices for their items, and the retailer then purchases, markets and resells to customers, the supplier takes on marketing responsibilities and manages their prices and order quantities under the new agency-selling model.

In the first part, we explain why the commission rate varies based on product categories and investigate how should the platform set the commission rates. Our results show that the com...[ Read more ]

Recently, increasing number of successful e-tailers like Alibaba and eBay operate as an online marketplace. These marketplaces facilitate suppliers to sell directly to the end-users and take a commission fee for each sale. The commission fee is generally proportional to the price, (e.g. 0.2% ~ 5% in Tmall). Unlike the traditional reselling model where the suppliers set wholesale prices for their items, and the retailer then purchases, markets and resells to customers, the supplier takes on marketing responsibilities and manages their prices and order quantities under the new agency-selling model.

In the first part, we explain why the commission rate varies based on product categories and investigate how should the platform set the commission rates. Our results show that the commission rate should be higher when the profit potential of the product becomes larger, when the upstream competition becomes more intense: either more suppliers or higher substitutability of the products. When the suppliers compete on price, the platform can always charge a higher commission rate than when the supplier compete on quantity. The agency-selling model (commission model) eliminates the double marginalization problem which is cited as the main cause of supply chain inefficiency and therefore improves the efficiency of the whole supply chain. Even though the commission model may hurt the suppliers, it benefits the retailer, the whole supply chain, and the consumers. This may explain why an increasing number of successful startups and traditional resellers like Amazon and JingDong start to embrace the agency-selling format.

In the second part, we investigate the incentive for information sharing in the online marketplace, and how the incentive depends on commission rate, competition intensity, type of competition, and production cost structures. Our results show that when the suppliers compete on quantity: the optimal information sharing extent for the platform increases (decreases) when the diseconomy (economy) of scale is large or when the commission rate is high (low). Besides, the information sharing extent is decreasing when the competition becomes more intense. When the suppliers compete on price, however, the common retailer should send the information to either all the manufacturers or to no manufacturer at all. Regardless of the type of competition, the platform should share no information when the production economy of scale is very large. Regardless of the type of competition, as long as the platform is willing to share information with manufacturers for free, her optimal information sharing extent is also optimal for the whole supply chain.