To or Not to Cooperate with Third-Party E-commerce Platform: The Influence of Commission Fee and Service Level

The third-party e-commerce platform is now widely adopted by small and medium sized retailers. For the retailer, commission fee and service level provided by the platform are two key factors influencing the pricing strategy and sales profit. However, these two factors are rarely considered in previous operations models. Taking both factors into consideration, we formulate the decision-making problem of third-party e-commerce as a Stackelberg game where the platform is the leader and the retailer is the follower. Given the platform’s commission fee, we derive optimal sales price for the retailer and optimal service level for the platform. Our result shows that the platform’s service level must be high enough to guarantee a positive profit and the effect of commission fee is dependent. Precisely, when the commission fee is small (or large) enough, the retailer and the platform can reach a consensus to increase (or to decrease) it. When it is moderate, they will bargain with each other, i.e., the retailer wants to decrease commission fee but the platform wants to increase it. Based on these observations, retailers are able to choose sales channel with more profit by comparing online store and offline shop.