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The online seller's optimal price and inventory policies under different payment schemes

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  • Shizhen Bai
  • Na Xu

Abstract

We develop an analytical model to determine the seller's optimal price and inventory decisions under different e-commerce payment schemes. There are two types of payment schemes for consumers to choose from: pay-to-order, with payment occurring when an order is taken online; and pay-on-delivery, in which payment occurs after delivery of the product. Considering different consumer behaviours after consumers evaluate the products, we characterize the rational expectations equilibrium for the online seller. We obtain the optimal price and order quantity to maximise the online seller's profit under different payment schemes. We provide the conditions when it is feasible for online sellers to offer every payment scheme. Numerical examples are provided to illustrate the comparison of online seller's performance between the two payment schemes. [Received 19 March 2015; Revised 12 July 2015; Revised 6 October 2015; Accepted 5 November 2015]

Suggested Citation

  • Shizhen Bai & Na Xu, 2016. "The online seller's optimal price and inventory policies under different payment schemes," European Journal of Industrial Engineering, Inderscience Enterprises Ltd, vol. 10(3), pages 285-300.
    • Handle: RePEc:ids:eujine:v:10:y:2016:i:3:p:285-300
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    References listed on IDEAS

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    Cited by:

    1. Jing Zhang & Na Xu & Shizhen Bai, 2021. "The optimal pricing decisions for e-tailers with different payment schemes," Electronic Commerce Research, Springer, vol. 21(4), pages 955-982, December.

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