Strategic logistics service choices for online platforms: Self-operated, third-party or agency logistics?

Abstract

Self-operated and third-party products in platform retailing can be delivered by self-operated or third-party physical distribution. However, how choosing the best logistics service mode represents a difficult problem for online platforms and sellers in practice. This paper analyzes the strategic logistics service mode choices for retail sales on an online platform. Equilibrium strategies are derived by solving game models considering three logistics service modes: self-operated, third-party and agency. The results show that the platform has an incentive to provide self-operated physical distribution to the seller when the distribution commission exceeds a threshold. More specifically, it achieves a win-win situation with the seller in the self-operated logistics service mode when the distribution commission falls within a moderate range. The platform is unwilling to provide any logistics services with a sufficient low distribution commission. Except in the case of high distribution commission and low self-operated distribution quality, the seller would prefer to accept the platform's self-operated physical distribution. In addition, the third-party physical distribution company generally prefers the agency logistics service mode unless the self-operated distribution quality and commission are high.