Pricing and bundling decisions for complementary products in an agency selling platform with risk‐averse suppliers and stochastic demand

Abstract

The exponential rise of e‐commerce has prompted many companies to utilize online platforms (e‐tailers) to sell their products. Agency selling is a prevalent policy among e‐tailers where suppliers determine retail prices of their products, and the e‐tailer charges an agency rate. This paper investigates the selling format and pricing problem of two risk‐averse suppliers who sell complementary products on the e‐tailer's platform. The e‐tailer can offer products separately and as a bundle. A game‐theoretic analysis reveals that the equilibrium prices of individual products and the bundle uniquely exist. The study explores that the e‐tailer does not always benefit from a higher agency rate. Furthermore, the agency rate can influence the superiority of mixed bundling over separate selling. Moreover, a mixed‐bundling strategy may hurt the supplier's profitability which is sensitive to marginal costs and the degree of risk aversion. Finally, when demand correlation increases, the supplier sets a lower price to mitigate the risk cost.