Hot potato or valuable opportunity: e-tailer’s support for competitor logistics service

A growing number of traditional retailers are evolving into multichannel retailers by offering substitutable products on e-tailers’ online platforms while maintaining their offline presence, thereby creating intense competition with e-tailers. At first glance, it might seem counterintuitive for e-tailers to provide internet platforms and logistics services for their competitors’ products. This paper delves into the implications of the e-tailer’s strategic choice to offer an internet platform and logistics services to retailers, alongside the impact of various market power structures on pricing decisions and profits within the supply chain, through the development of game theory models. These models aim to offer a theoretical foundation for the sustainable and healthy growth of the e-commerce supply chain. Our findings reveal that logistics services enhance the convenience of online product delivery but also lead to higher retail prices for both online and offline products, adversely affecting offline consumers. Interestingly, we uncover a counter-intuitive result: when referral fees are high and competition between products is fierce, e-tailers are inclined to provide their online platform and superior logistics services to their competitors’ products. Conversely, retailers invariably benefit from e-tailers permitting them to sell products on their online platforms and providing logistics services, regardless of market dynamics. Additionally, in scenarios where supply chain members set prices first, they tend to establish higher optimal retail prices for their products. However, this does not always translate to higher profits, indicating that both e-tailers and retailers prefer the other party to make the initial pricing decisions. This study underscores the complex interplay between e-tailer strategies, market power structures, and their collective impact on the e-commerce ecosystem’s pricing and profitability.