Implications of e-tailers’ transition from reselling to the combined reselling and agency selling

Whether or not online retailers (“e-tailers”) should choose a reselling or agency selling business mode has been well studied by academics. In practice, many major e-tailers, including Amazon and JD.com, are moving toward a combined approach, but not toward the pure agency selling mode. We adopt a game theoretical model to examine the implications of this transition by considering a supplier that distributes its products through a bricks-and-mortar retailer and an e-tailer who has the flexibility of using reselling or combined reselling and agency selling. Conventional wisdom suggests that the agency selling would benefit the supply chain members due to the effect of eliminating double-marginalization. Our results, however, reveal that, comparing with the reselling mode, the additional agency selling is not always beneficial to the supplier nor always helpful to the bricks-and-mortar retailer. These findings not only complement the emerging literature regarding the strategic mode choice of e-tailers but also, from a practical perspective, urge caution in whether the supplier should participate in the e-tailer’s marketplace through agency selling.