Agency Selling or Reselling? Channel Structures in Electronic Retailing

Abstract

In recent years, online retailers (e-tailers) have started allowing manufacturers direct access to their customers while charging a fee for providing this access, a format commonly referred to as agency selling. In this paper, we use a stylized theoretical model to answer a key question that e-tailers are facing: When should they use an agency selling format instead of using the more conventional reselling format? We find that agency selling is more efficient than reselling and leads to lower retail prices; however, the e-tailers end up giving control over retail prices to the manufacturer. Therefore, the reaction by the manufacturer, who makes electronic channel pricing decisions based on their impact on demand in the traditional channel (brick-and-mortar retailing), is an important factor for e-tailers to consider. We find that when sales in the electronic channel lead to a negative effect on demand in the traditional channel, e-tailers prefer agency selling, whereas when sales in the electronic channel lead to substantial stimulation of demand in the traditional channel, e-tailers prefer reselling. This preference is mediated by competition between e-tailers -as competition between them increases, e-tailers prefer to use agency selling. We also find that when e-tailers benefit from positive externalities from the sales of the focal product (such as additional profits from sales of associated products), retail prices may be lower under reselling than under agency selling, and the e-tailers prefer reselling under some conditions for which they would prefer agency selling without the positive externalities.

Agency Model and Wholesale Pricing: Apple versus Amazon in the E-Book Market

“…Again, the agency model need not be socially worse than wholesale pricing. This finding is confirmed in Abhishek, Jerath and Zhang (2016) for a single manufacturer selling a product through symmetric electronic retailers. Although neither mentioning the e-book market nor analyzing an asymmetric outcome, Liu and Shuai (2015) is related in its analysis of upstream and downstream oligopolies and retail prices that are set either upstream or downstream under revenue sharing or linear pricing.…”

Pricing decisions in marketing channels in the presence of optional contingent products

“…Abhishek et al (2016) belongs to this stream. The authors study the case where a manufacturer sells its product either directly to consumers (via a traditional channel) or via an e-channel where two retailers can choose to adopt a wholesale pricing model or an RSC.…”

“…Revenue-Sharing Contract One of the main differences between wholesale pricing and RSC stems from the fact that the control over Q bi passes from the retailer to the manufacturer (Abhishek et al (2016)). In this case of revenue sharing in product bi market, the game is also sequential.…”

When Old Meets New: Wholesale and Agency Models in the Market for Printed and Electronic Books

“…I adopt a commonly used linear demand function that satisfies both of these assumptions [1,8,15,16,10]. The demands for printed-and e-books-q b and q e , respectively-are:…”