Integrating logistics service or not? The role of platform entry strategy in an online marketplace

We study whether an e-commerce platform should costly establish self-owned logistics to support the logistics distribution services of both the manufacturer and e-tailer. We derive optimal lo-gistics integration strategies and investigate the influence of the logistics integration decision on the platform entry decision of the manufacturer. We find that no matter who provides the logistics service, the platform entry decision is the only dominant decision for the manufacturer given that the manufacturer has priority in pricing. For the e-tailer, when the product cross-price elasticity coefficient is large, regardless of the unit logistics service cost, the e-tailer will be better off under the scenario where a third-party provider provides the logistics service. When the cross-price elasticity coefficient is small and the platform commission rate is high, the dominant strategy of the e-tailer depends on the unit logistics service cost gauge of both the e-tailer and the third-party logistics provider. In addition, when the cross-price elasticity coefficient is moderate, building a logistics system is always the most favorable option for the e-tailer.

Automated summary

We examined whether an e-commerce platform should invest in developing its own logistics system to support manufacturers and e-tailers in their distribution services. We determined the most optimal logistics integration strategies and analyzed the impact of this decision on manufacturers' platform entry decisions. Our findings reveal that manufacturers prioritize platform entry decisions regardless of who provides logistics services. For e-tailers, when the product cross-price elasticity coefficient is high, they benefit more from third-party logistics providers. However, when the cross-price elasticity coefficient is low and platform commission rates are high, e-tailers' strategies depend on both their own and third-party logistics providers' unit service costs. Furthermore, building a logistics system is always the most favorable option for e-tailers when the cross-price elasticity coefficient is moderate.