Platform or Wholesale? A Strategic Tool for Online Retailers to Benefit from Third-Party Information

Online retailing is dominated by a channel structure in which a retailer either buys products from competing manufacturers and resells to consumers (wholesale scheme) or lets manufacturers directly sell to consumers on its platform for a commission (platform scheme). Easy access to publicly available third-party information such as product reviews which facilitate consumers' purchase decisions is another distinctive and ubiquitous characteristic of online retailing. We show that retailers can use the upstream pricing scheme, wholesale or platform, as a strategic tool to bene t from third-party information. Information on the quality dimension homogenizes consumers' perceived utility di erences between competing products and increases the upstream competition, which bene ts the retailer under the wholesale scheme but hurts the retailer under the platform scheme. Information on the t dimension heterogenizes consumers' estimated ts to the products and softens the upstream competition, which hurts the retailer under the wholesale scheme but bene ts the retailer under the platform scheme. Consequently, when the precision of the third-party information is high (low), a retailer can bene t from third-party information by adopting the wholesale (platform) scheme if the quality dimension plays a dominant role and by adopting the platform (wholesale) scheme if the t dimension plays a dominant role. The results reveal that the quality information and t information play very di erent roles in changing the upstream competition, and whether the retailer can bene t from the third-party information depends on its pricing scheme choice, the precision of the third-party information, and the relative importance of quality and t attributes in consumers' evaluation of products.