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Inventory competition on electronic marketplaces – A competitive newsvendor problem with a unilateral sales commission fee

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  • Straubert, Christian
  • Sucky, Eric

Abstract

We present a competitive newsvendor problem with a sales commission paid by one newsvendor to another newsvendor when selling a product. Customer demand is stochastic, and customers individually decide with given probabilities from which newsvendor they want to order or whether they do not want to order at all. These probabilities can vary depending on which newsvendor is out of stock. The problem described arises when marketplace operators offer the same or substitutable products as third-party vendors and therefore directly compete with third-party vendors on their platform. Our research is motivated by practical cases such as the Amazon marketplace, where Amazon is the marketplace operator that sets the sales commission and, simultaneously, directly competes with third-party vendors. Both the marketplace operator and a competing third-party vendor should ideally account for the other party's behavior when deciding their order quantity. We calculate the noncooperative Nash equilibrium and the optimal cooperative order quantities (centralized solution). Additionally, we emphasize analyzing the effect of the sales commission on the optimal order quantities and the gross profits of the two parties.

Suggested Citation

  • Straubert, Christian & Sucky, Eric, 2023. "Inventory competition on electronic marketplaces – A competitive newsvendor problem with a unilateral sales commission fee," European Journal of Operational Research, Elsevier, vol. 309(2), pages 656-670.
    • Handle: RePEc:eee:ejores:v:309:y:2023:i:2:p:656-670
    DOI: 10.1016/j.ejor.2023.02.002
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    References listed on IDEAS

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