Delivery Arrangement in Online Distribution Channels Under Different Power Structures

Express delivery is commonly recognized as one of the most critical and expensive operations for e-commerce. When selling products online, the e-retailer may invite the suppliers to be responsible for delivering products to customers, and the suppliers may respond by accepting or rejecting this invitation. Motivated by these observations, we explore the delivery arrangement in an online distribution channel with two competing suppliers selling substitutable products through a common e-retailer. Based on nonlinear delivery cost which reflects the delivery economy or diseconomy, we analytically characterize the equilibrium delivery arrangement under the E-retailer-Stackelberg game and Supplier-Stackelberg game. We find that the market followers who earn lower profit margins might be more willing to undertake delivery than the market leaders. Counterintuitively, the e-retailer always prefers undertaking delivery when there is large delivery diseconomy under each power structure, but prefers inviting both suppliers to deliver products when there is delivery economy (small delivery diseconomy) under the E-retailer-Stackelberg (Supplier-Stackelberg) game. The suppliers accept the delivery invitation only when the delivery economy is large under the E-retailer-Stackelberg game, but accept the delivery invitation even when there is significant delivery diseconomy under the Supplier-Stackelberg game. Interestingly, both suppliers might be better off rejecting the delivery invitation, and yet they still accept it and fall into the prisoner's dilemma. Despite the symmetric suppliers, the hybrid delivery arrangement might emerge in equilibrium. In addition, we show that our key findings and insights are relatively robust by considering asymmetric suppliers and different delivery scale effects in the extended models