Impact of capacity on the supplier's distribution channel selection in facing a retail platform

In the presence of agency selling in emerging retail platforms, suppliers are motivated to select purely traditional reselling, agency selling or a hybrid distribution channel strategy. In this paper, considering a capacity-constrained supplier facing a retail platform, we examine the equilibrium pricing and ordering decisions in the hybrid channel, and further analyze the impact of limited capacity on the supplier's distribution channel selection as well as equilibrium outcomes. Results show that the hybrid channel always dominates pure agency selling. In comparison to the unlimited capacity setting, we find that limited capacity motivates the supplier to select pure reselling under a low commission rate. However, under a moderate commission rate, moderate capacity motivates the supplier to select the hybrid channel. We also show that, under moderate capacity in the hybrid channel, the retail platform may order all the supplier's capacity and strategically withhold some to avoid downstream competition, and that the impact of commission rate on the capacity thresholds of withholding behavior may be nonmonotonic. Interestingly, we find that moderate capacity may benefit the supplier, the retail platform, and consumers at the same time, creating a win-win-win outcome.

Automated summary

This paper examines the equilibrium pricing and ordering decisions in a hybrid channel for a capacity-constrained supplier facing a retail platform. The results show that the hybrid channel dominates pure agency selling, with capacity and commission rate playing key roles in determining the optimal distribution channel strategy. Interestingly, moderate capacity in the hybrid channel can lead to a win-win-win outcome for the supplier, the retail platform, and consumers.