Pricing Strategies in the Electronic Marketplace

Chen, Jihui

doi:10.1007/978-3-642-39747-9_21

Cited by 3 publications

(1 citation statement)

References 136 publications

(132 reference statements)

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“…They find that the ISAs do not always lead to more intensified price competition but sometimes higher average price when more retailers join. There are a series of papers (Brynjolfsson and Smith, 2000; Clemons et al , 2002; Koças, 2005; Chen, 2014) studying the online price competition and providing explanations on the price dispersion. Our paper also adds to this stream of research by providing conditions under which both the e-retailer and the member store may end up charging an even higher expected price in the e-marketplace than without.…”

Section: Introductionmentioning

confidence: 99%

Agglomeration effect and the “dual-format” e-marketplace pricing scheme

Lin

2017

JM2

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Purpose This paper aims to study a dominant e-retailer operating its own e-marketplace (B2C) to host peer competitor as well as acting as a traditional retailer (“dual-format” retailing as in Mantin and Krishnan 2014). The dominant retailer offers a two-part tariff charging scheme to a third-party seller. The seller decides whether to join the e-marketplace. The present paper is interested in addressing the following questions: What is the pricing equilibrium before/after the formation of the e-marketplace? What will be the “optimal” charging scheme? What is the impact on the e-marketplace operator if the third-party seller has the option to become “featured”. Design/methodology/approach This paper adopts a stylized model to capture the competition between the two retailers and applies game theory to solve the pricing equilibrium. The authors model the dual-format retailing in a two-stage decision: Stage 1, the e-marketplace operator offers a two-part tariff; Stage 2, if the other retailer is participating, they engage in a pricing competition. They assume that the e-marketplace operator is a profit maximizer by choosing its charging scheme subject to the condition that the participating retailer is no worse off. Findings The authors find that the e-retailer and the third-party seller in the e-marketplace are not always hurt by intensified price competition. They identify conditions under which higher expected prices are charged as a result of agglomeration effect. The authors’ model also provides theoretical evidence on this popular charging scheme, and shows the feasible region in which the e-marketplace operator could allocate the surplus resulted from the formation of the e-marketplace between itself and the participating retailer. Finally, the authors demonstrate that if the third-party seller has the option to become a “featured” retailer (He and Chen, 2006), it can be detrimental to the e-marketplace operator. Originality/value This work is different in three ways: First, the authors model an e-marketplace adopting a “dual-format” retailing, facing the trade-off between its direct retailing revenue and the rents collected from the member store, while the literature mainly focuses on e-marketplaces playing the intermediary role. Second, they explicitly model the “market expansion effect” caused by the agglomeration after the formation of the e-marketplace. The present study complements this stream of research by investigating and providing theoretical evidence on the charging scheme popularly adopted by the e-marketplaces and proposes ways to share the surplus to the participating store.

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Section: Introductionmentioning

confidence: 99%

Agglomeration effect and the “dual-format” e-marketplace pricing scheme

Lin

2017

JM2

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Joint Dynamic Pricing and Order Fulfillment for E-commerce Retailers

Lei

Jasin

Sinha

2018

M&SOM

111

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We consider an e-commerce retailer (e-tailer) who sells a catalog of products to customers from different regions during a finite selling season and fulfills orders through multiple fulfillment centers. The e-tailer faces a joint pricing and fulfillment (JPF) optimization problem: at the beginning of each period, the e-tailer needs to jointly decide the price for each product and how to fulfill an incoming order (i.e., from which warehouse to ship the order). The objective of the e-tailer is to maximize its total expected profits defined as total expected revenues minus total expected shipping costs. (All other costs are fixed in this problem.) The exact optimal policy for JPF is difficult to solve; so, we propose two heuristic controls that have provably good performance compared to reasonable benchmarks. Our first heuristic control directly uses the solution of a deterministic approximation of JPF as its control parameters. Our second heuristic control improves the first one by adaptively adjusting the original control parameters according to the realized demand. An important feature of the second heuristic control is that it decouples the real-time pricing and fulfillment decisions, making it easy to implement. We show theoretically and numerically that the second heuristic control significantly outperforms the first heuristic control and is very close to a benchmark that jointly reoptimizes the full deterministic problem at the beginning of every period. The online appendix is available at https://doi.org/10.1287/msom.2017.0641 .

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Joint Product Framing (Display, Ranking, Pricing) and Order Fulfillment Under the Multinomial Logit Model for E-Commerce Retailers

Lei

Jasin

Uichanco

et al. 2022

M&SOM

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Problem definition: We study a joint product framing and order fulfillment problem with both inventory and cardinality constraints faced by an e-commerce retailer. There is a finite selling horizon and no replenishment opportunity. In each period, the retailer needs to decide how to “frame” (i.e., display, rank, price) each product on his or her website as well as how to fulfill a new demand. Academic/practical relevance: E-commerce retail is known to suffer from thin profit margins. Using the data from a major U.S. retailer, we show that jointly planning product framing and order fulfillment can have a significant impact on online retailers’ profitability. This is a technically challenging problem as it involves both inventory and cardinality constraints. In this paper, we make progress toward resolving this challenge. Methodology: We use techniques such as randomized algorithms and graph-based algorithms to provide a tractable solution heuristic that we analyze through asymptotic analysis. Results: Our proposed randomized heuristic policy is based on the solution of a deterministic approximation to the stochastic control problem. The key challenge is in constructing a randomization scheme that is easy to implement and that guarantees the resulting policy is asymptotically optimal. We propose a novel two-step randomization scheme based on the idea of matrix decomposition and a rescaling argument. Managerial implications: Our numerical tests show that the proposed policy is very close to optimal, can be applied to large-scale problems in practice, and highlights the value of jointly optimizing product framing and order fulfillment decisions. When inventory across the network is imbalanced, the widespread practice of planning product framing without considering its impact on fulfillment can result in high shipping costs, regardless of the fulfillment policy used. Our proposed policy significantly reduces shipping costs by using product framing to manage demand so that it occurs close to the location of the inventory.

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Pricing Strategies in the Electronic Marketplace

Cited by 3 publications

References 136 publications

Agglomeration effect and the “dual-format” e-marketplace pricing scheme

Agglomeration effect and the “dual-format” e-marketplace pricing scheme

Joint Dynamic Pricing and Order Fulfillment for E-commerce Retailers

Joint Product Framing (Display, Ranking, Pricing) and Order Fulfillment Under the Multinomial Logit Model for E-Commerce Retailers

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