Downstream information sharing and sales channel selection in a platform economy

Abstract

We investigate an online retailer's information sharing strategy with a supplier who has already sold products through the online retailer's retail channel. The supplier now decides whether or not to open a commission channel on the retailer's online marketplace. When engaged in the commission channel, the supplier can directly sell his products to customers by paying a fixed entry fee and a proportional commission fee to the online retailer. We show that the online retailer may have an incentive to share the demand information with the supplier, and such an action may induce the supplier to establish the commission channel. This inducement effect sheds some new intuitions to the literature. Several extensions are considered to verify the robustness of our results. In specific, we also consider a variation of the model in which the supplier leads by making the channel establishment decision before the online retailer's decision on information sharing, and we identify the firms’ preferences between the two models. Moreover, even with a fully competitive market or with an exogenous wholesale price, our results hold qualitatively.