Ann Oper Res (2018) 270:179–200

https://doi.org/10.1007/s10479-016-2214-4

S.I.: BIG DATA ANALYTICS IN OPERATIONS & SUPPLY CHAIN MANAGEMENT

Pricing and bargaining strategy of e-retail under hybrid

operational patterns

Shuihua Han1 · Yufang Fu1 · Bin Cao1 ·

Zongwei Luo2

Published online: 19 May 2016

© Springer Science+Business Media New York 2016

Abstract Dual-channel, as a significant retail strategy, has got more and more attention for
academia and industry. While most literature focus on the conflicts between traditional chan-
nel and online channel, there are few works consider the conflicts of online retail channels.
This paper focuses on the pricing and bargaining strategy of manufacturer and e-retailer
under hybrid operational patterns which are adopted by e-commerce platforms. The oper-
ational patterns are divided into two types: other-organization e-pattern, such as Amazon,
and self-organization e-pattern, such as Alibaba. We consider the commission charge which
is collected by self-organization e-platform; and the analysis reveals that a fixed commis-
sion only has an effect on the total profit of manufacturer, but a variable commission would
influence the wholesale price of other-organization e-platform and e-retail prices of both
e-platforms, respectively. The results also suggest that, the wholesale price and the e-retail
price are both affected by the service quality and this effect is also influenced by the variable
commission. In addition, we also discuss the possibility of the manufacturer and e-retailer
adjust their pricing strategy based on big data implementation.

Keywords Pricing game · Operational pattern · E-retail · Service quality

1 Introduction

Due to the rise of online retail and the change of consumption habit, many traditional manu-
facturing enterprises start to expand online retail channels to complement the traditional

B Yufang Fu
fuyufang@stu.xmu.edu.cn
B Zongwei Luo
luozw@sustc.edu.cn
1 Department of Management Science, School of Management, Xiamen University, No. 422, Siming
South Rd., Xiamen 361005, Fujian, People’s Republic of China
2 Department of Electrical and Electronic Engineering, South University of Science and Technology
of China, No. 1088, xueyuan Rd., Shenzhen 518055, Guangdong, People’s Republic of China

123
180 Ann Oper Res (2018) 270:179–200

channels, including self-organization third-party retail channel, other-organization third-

party retail channel and self-building direct channel etc. The channel expansion makes a
single relationship between channels become more complicated. The manufacturer not only
needs to face with the coordination problems between the traditional channel and online
channel, but also has to solve the conflicts among the online retail multi-channels.
Although some manufacturers attempt to set up electronic platforms by themselves, the
popularity and influence of these e-platforms are still weak. Based on this situation, many
manufacturers choose third-party electronic retail platforms to sell their products online, such
as Gree, Haier etc. they successively sell their products through third-party e-platform (such
as JingDong, Tmall, etc.). But we also notice that, in some cases, the e-retail price of one
product on JingDong is different from the price of the same product on Tmall, which moti-
vates us to focus on the relationship between the pricing strategy of third-party online retail
and the e-platform operational patterns. In this paper, we focus on the conflicts between the
third-party online retail channels and study the competition between the e-platforms under
different operational patterns (self-organization and other-organization). Different opera-
tional patterns generate different relationship between the manufacturer and the electronic
platform. Under other-organization pattern, the e-platform is similar to an e-retailer, and the
operational mode is manufacturer—retailer purchasing—selling to consumers, which means
that the manufacturer provides its products to e-retailer, and e-platform accomplishes the
selling part to the consumers. Under this pattern, manufacturer only has the right to decide
the wholesale price to the e-retailer, while the e-retail price is set by the e-platform. On the
contrary, an e-platform only provides an online transaction place under self-organization pat-
tern. The manufacturer needs to pay a commission to the e-platform, and sells its products to
consumers through an electronic store which is housed on the self-organization e-platform.
Although the majority of the electronic stores are operated by agents of the manufacturers, the
agents do not have the pricing power in general. The manufacturer has to set the online retail
price on the self-organization channel, and competes with the other-organization channel.
This process can be expressed by Fig. 1.
Although the self-organization e-platform just provides a trading platform in the realistic
sales process, the pricing power is still under the control of manufacturers. We can change

Fig. 1 Tripartite relationship under self-organization and other-organization pattern

123
Ann Oper Res (2018) 270:179–200 181

the competition relationship from the e-platforms to the e-platform and the manufacturer.
Moreover, the other-organization e-platform needs to purchase products from the manufac-
turer, so the cooperative relationship also exists between them and needs to be considered by
the other-organization e-platform and the manufacturer.
Although some researchers have already explored the pricing games of retailers and e-
retailers (Lu and Liu 2013; Bernstein et al. 2008; Yan 2008; Hu and Li 2012), the competition
between two e-platforms with different operational patterns is always ignored. In previous
studies, retail channel and direct channel are always used to analyze the conflict and coordi-
nation. In fact, the direct channel contains two kinds of ways: setting up an electronic channel
or selling to the customers through an existing 3rd-party e-platform, and the extant literature
has a theoretical gap in how the 3rd-party e-platform influences the pricing and bargaining
strategy between manufacturers and e-retailers. In this paper, we try to explore the pricing
strategy of e-retail channel with different operational patterns adopted by e-commerce plat-
forms. The operational patterns are divided into two types: the first type can be described as
the e-retailer purchases products from the manufacturers, sets the price and sells to consumers
by itself, such as Amazon; and the second type is that the e-platform provides a platform for
manufacturers and consumers, and the prices of products are decided by manufacturers, such
as Alibaba. In this paper, we try to solve the following research question: How do different
3rd-party e-retailing patterns affect a manufacturer’s pricing decision and the e-retailer’s
bargaining and pricing strategy?
We consider three keys of the pricing model: the operational pattern, the commission
charged by the self-organization e-platform and service quality. In e-retail, service quality is
crucial for consumers and many of the e-platforms provide user ratings and comments on the
service quality they received. In fact, these data can satisfy the dimensions of data quality
(Hazen et al. 2014), which has been proved to have positive effects on firm performance (Ren
et al. 2016). To combine utility functions with data science (Roberts 2008), in this study, we
consider the service quality as a factor that affects the utility of consumers, which eventually
has an impact on the purchase intention. The remainder of this paper is organized as follows:
In Sect. 2, we review the recent literature about the pricing problems in dual-channel. In
Sect. 3, we describe the conceptual model of Bertrand game. The game analysis of initial
wholesale price is presented in Sect. 4 and the analysis of the bargaining process is conducted
in Sect. 5. Our conclusions and further research are given in Sect. 6.

2 Literature review

2.1 Pricing in dual-channel supply chain

With the rapid development of electronic retail, the impact of online retail channel is becoming
more and more significant. Channel expansion has become an important marketing strategy
for manufacturers, and has long-term effects on the performance of enterprises (Chu et al.
2007). Consequently, channel expansion has been a topic of interest for both academia and
industry. Many scholars suppose the additional channel would raise the profit of manufacturer
due to the additional source of income, but reduce the profit of manufacturer because of
the channel conflict (Xiao et al. 2014). According to this view, the manufacturer needs to
consider the conflict and coordination problems between retailing channels (Rodrłguez and
Aydın 2015; Chen et al. 2013; Hsieh et al. 2014; Cai et al. 2009; Xiao et al. 2005; Desai
1992; Amrouche and Yan 2015 etc.).

123
182 Ann Oper Res (2018) 270:179–200

The literature on channel coordination mainly contains pricing, inventory, channel struc-
ture and revenue sharing et al. Among these studies, many of them focus on how to set a
more reasonable price when manufacturer introduces a direct-channel (Tsay and Agrawal
2004; Chiang et al. 2003; Cattani et al. 2006; Upasani and Uzsoy 2008; Bernstein et al.
2008; Su and Geunes 2013 etc.). Tsay and Agrawal (2000), Dumrongsiri et al. (2008), Dan
et al. (2012) and Ji and Yu (2014) consider the pricing strategy under the service quality
differences among channels. Chiang et al. (2003) examines a price competition game in a
dual channel supply chain and shows that a direct channel strategy makes the manufacturer
more profitable by posing a viable threat to draw customers away from the retailer, even
though the equilibrium sales volume in the direct channel is zero. Cattani et al. (2006) stud-
ies pricing strategies of both the manufacturer and the retailer. Viswanathan (2005) studies
the competition across online, traditional and hybrid channels using a variant of circular
city model. Tsay and Agrawal (2004) systematically review the multichannel models and
examine the adjustment mechanism between the manufacturer and the retailer. Kurata et al.
(2007) studies the pricing strategy in dual-channel under brand competition. Almost all of
these studies assume the manufacturer sells products through two channels: the traditional
retail channel and direct channel. As mentioned above, the manufacturer-customer channel is
summarized into direct-channel in general, and the role of 3rd-party e-platform in the online
direct-channel is often ignored. Few literature concern the channel conflict of online retailing
channel and separate the 3rd-party electronic channel from direct-channel for studying.
A related research of our paper was studied by Li and Cui (2013). The authors focus on a
supply chain with a direct channel and an e-retail channel, build a customer demand function
based on product price and logistic service, and investigate the optimal pricing decision
and logistic service level decision of supply chain member by using game theory based on
wholesale price agreement. Although this study focuses on the online retail channel, it mainly
researches the conflict of direct online channel and electronic retail channel, and the wholesale
price is set as a linear function of retail prices. But in practice, self-built direct channel takes
larger operational costs and marketing costs but obtains weak effects, so manufacturers tend to
utilize different electronic retail channels for their online sales. We suppose that the wholesale
price decision should build on the profit of enterprise, and the players of supply chain need to
set a new retail price after bargaining on the wholesale price. Therefore, we explore the pricing
and bargaining strategy in online retail channel under different operational patterns from the
perspective of manufacturer. In the e-commerce environment, with the improvement of the
retail market concentration and the rise of big electronics retailers, relationship in the supply
chain between manufacturers and retailers has began to subtle change. The wholesale price is
not completely controlled by the manufacturer, but is a result of bargaining and gambling (Li
and Cui 2013). In the meantime, the bargaining power is very different between the online
retailers under different operational patterns. In this paper, we try to investigate the pricing
strategy under hybrid online retail patterns and further enrich the research in the field of
multi-channel pricing.

2.2 Big data in supply chain management

Recently, big data has got a lot of attention in supply chain management (SCM). The extant
research shows many vivid cases for this topic, for instance, retailers can achieve up to
15–20 % increase in ROI by putting big data into analytics (Perrey et al. 2013); Wal-Mart
successfully improve efficiency of their pricing strategies by big data analytics (Chen and
Zhang 2014). These views have been widely accepted by academics and practitioners. How-
ever, many scholars have their own ideas on the subject that how to utilize big data in SCM.

123
Ann Oper Res (2018) 270:179–200 183

Some scholars proposed their perspectives of the application of data science in SCM, such as,
predictive analytics (Hazen et al. 2014; Dhar 2013); operations delivery (Wamba et al. 2015);
pricing adjusted strategy (Chen and Zhang 2014); risk management (Chae 2015), etc. There
are also studies which introduce other thoughts to apply computer science in decision mak-
ing process. Roberts (2008) indicates some developing interfaces between computer science
and the decision sciences, which include utility functions; online decisions; dynamic mar-
kets, etc. These processes involve demand forecasting, modeling of customer behavior, and
optimization. For manufacturers and retailers, good decision-making is founded on quality
information (Ren et al. 2016). Hazen et al. (2014) and Ren et al. (2016) also examine the pos-
itive impact of data quality on firm performance by empirical study. Chae (2015) investigates
how one can use the Twitter information to make decision in supply chain. Twitter effect
then can be described as “electronic word of mouth”, which is seen as “sensor” of customer
and market. Similar to Twitter information, online retail has provided a community for the
consumers of each product, which also produce abundant data of rating and comments for
e-retailers and manufacturers. The big data from rating and comments can help the players
get customers’ ideas and feedback about products and services (Chae 2015) and be effective
in learning the public’s perception of products and services (Oleary 2011). Hence, the rating
and comments can also be seen as “sensor” in online supply chain, which significantly impact
the performance of organizations (Teece 2007). Following this train of thought, we choose
service quality, which can be measured by a range of unstructured data of relative items (such
as delivery service, security, processing speed, user-friendliness) with big data analytics, as a
key factor in the utility function and analyze the impact of service quality on market demand
and pricing strategy in online retail context.

3 Model description

Here, we consider one manufacturer and two e-commerce platforms in the online retail
market which adopt two different types of operational patterns: self-organization and other-
organization.

Self-organization e-pattern(SEP) under this pattern, the e-commerce platform only provides
a trading platform for the manufacturer and consumers, and the manufacturer just utilizes
the existing third-party e-commerce platform to sell its product to consumers and pays the
e-platform a commission. We call this pattern ‘self-organization pattern’ and the e-commerce
platform ‘self-organization e-platform’. In general, the manufacturer would not run the e-
shop by itself but empower an agency to sell its products on the third-party e- commerce
platform, such as JackJones and Apple Inc. The agency just helps the manufacturer run the
e-shop on the third-party e-retail platform, and does not have the right of setting the price
of the products. So under this pattern, the pricing power is in the hands of the manufacturer,
the agency and the third-party e-commerce platform have a fairly weak voice in bargaining
power. So in this case, we can see the manufacturer as the player of the price game.

Other-organization e-pattern(OEP) under this pattern, the e-commerce platform is run by

the e-retailer, that is, the e-retailer sells products of the manufacturer through its own e-
channel (e-platform), such as Macy’s, Best Buy, and so on. We call this pattern ‘other-
organization pattern’ and at this time, the e-commerce platform is a transaction entity of the
sales activities, so we can regard it as an e-retailer.1 In this case, the manufacturer plays the role
1 In this paper, e-retailer refers to the owner of other-organization e-platform.

123
184 Ann Oper Res (2018) 270:179–200

Fig. 2 The game of business process

of a wholesaler. We assume that the e-retailer already operates at scale in the e-retail market.
The e-retailer purchases products from the manufacturer and sells them to the consumers. In
this process, relying on powerful scale advantage, the e-retailer has the capacity to set the
e-retail price of its e-platform and bargain with the manufacturer about the wholesale price,
the manufacturer can only set the wholesale price then.
We use letter r and s to represent other-organization e-platform and self-organization e-
platform respectively and m to denote the manufacturer. The same product is sold on two
e-platforms, one e-platform adopts OEP, which is denoted by e-platform r . And the other
adopts SEP, which is chosen by manufacturer m, and is denoted by e-platform s. The game
process of this business can be showed in Fig. 2.
Manufacturer m provides products to e-retailer r and consumers on e-platform s. Under
this hybrid online channel, manufacturer m sets the product’s e-retail price on e-platform s
based on the e-retail price of e-retailer r and the wholesale price to e-retailer r . Manufacturer
m retails to customers through e-platform s and pays a commission to the operator of e-
platform s. But the price of the same product selling on e-platform r is set by the e-retailer
r , based on the sales volume and wholesale price. We can see that, facing with the different
operational patterns of 3-rd party e-retail platforms, manufacturer m needs to compromise
in the price conflicts of online channels. In order to maximizing the profits, manufacturer m
has to consider not only the e-retail prices under dual online channels, but also the wholesale
price to e-retailer r . The wholesale price cannot be too low, or else the selling of e-platform
r will encroach on the market share of e-platform s; in the meantime, it cannot be too high,
otherwise the whole sales volume of the market will decrease. But for e-retailer r , they want
to use their strong bargaining power to negotiate with manufacturer m for a lower wholesale
price. Nevertheless, in the e-retail market, manufacturer m and e-retailer r constitute a multi-
stage game relationship which decides the online price of the two e-platforms. In this paper,
we emphatically analyze the first two stages:
Stage 1 E-retailer r purchases products from manufacturer m; manufacturer m provides
products to e-retailer r and set an initial wholesale price w0 , which is also the first quote of
this bargaining game.
Stage 2 Based on the wholesale price which is set by manufacturer m in stage 1, e-retailer
r decides whether to bargain with manufacturer m or not by using its bargaining power in
the products acquisition process and give manufacturer m its quote. Then, manufacturer m
decides whether to accept or not. If the manufacturer m rejects the quote given by the e-retailer
in the bargaining, this transaction cannot be concluded, and the profit of e-retailer r become

123
Ann Oper Res (2018) 270:179–200 185

zero and manufacturer m fits the total demands of the market through the e-platforms. If
the e-retailer r chooses not to bargain with manufacturer m or manufacturer m accepts the
quote which is given by the e-retailer r , then, e-retailer r sets the e-retail price and sells the
products through e-platform r , and manufacturer m sells its products through e-platform s,
and sets e-retail price for the e-platform s simultaneously in a Bertrand game.
When the customers purchase goods online, they can choose from both e-commerce
platforms. If the products of the two e-platforms are homogenous, the demands of different
e-platforms are decided by the shopping experience. Using the customer utility theory, we
derive the demand function of each platform. We choose si (i = s, r ), si ≥ 0, to denote the
service quality level of e-platform s and r . We assume that the service quality of each platform
can be separated by the consumers. Let θ , which is uniformly distributed in interval (0,1),
denotes the service preference coefficient of consumers, which represents the consumers
utility from one unit of service consumption. So, the utility of each e-retail platform can be
measured by Ui = θ si − pi , (i = s, r ), with pi denoting the retail price of platform s and r .
This modeling approach is also adopted by some related previous studies (Mussa and Rosen
1978 etc.).
We assume that the products are sufficient and can be purchased at the price of the current
stage whenever necessary, so based on customer utility theory, we get when ss < sr :
pr ss − ps sr
Ds ( ps , pr ) = (1)
ss (sr − ss )
pr − ps
Dr ( ps , pr ) = 1 − (2)
sr − ss
when ss > sr , the demand function can be derived as:
pr − ps
Ds ( ps , pr ) = 1 − (3)
sr − ss
pr ss − ps sr
Dr ( ps , pr ) = (4)
sr (sr − ss )
These are the demand functions of e-platforms s and r , which also represent the demands
of two online channels. In the meantime, manufacturer m needs to pay a commission to
e-platform s if it wants to sell its products on e-platform s, and the general form of this
commission can be represented by the function as bellow:

H = F + h Ds (5)

This function describes four scenarios of the commission:

Scenario 1 F  = 0, h = 0, under this condition, e-platform charges fixed fees from manufac-
turer m for the services it provides. This method is similar to ‘membership fee’.
Scenario 2 F = 0, h  = 0, under this condition, e-platform s charges variable fees from
manufacturer m based on the sales volume on e-platform s, that is, every time it sells one
unit of product on e-platform s, manufacturer m needs to pay a certain amount of money to
e-platform s, and in this case, the commission is similar to ‘push money’.
Scenario 3 F = 0, h = 0, that is, H = 0, and this means e-platform s provides an online
transaction platform for manufacturer m for free, which is unreasonable and cannot be found
in practical operational process unless e-platform s has other profit means(such as advertising
fees).So this case can be seen as a special case of the first case.
Scenario 4 F  = 0, h  = 0, this case indicates that, manufacturer m needs to pay variable fees
according to the volume of sales plus a ‘membership fee’ to e-platform s.

123
186 Ann Oper Res (2018) 270:179–200

We assume that the search cost of the two e-retail platforms is zero. This assumption is
appropriate because the two platforms are selling products online, and consumers do not
need to spend a lot to search the information of the product. In the meantime, the cost of
providing services is represented by 21 ηsi2 , (i = s, r ), where η indicates the cost-benefit ratio
of consumer service. This assumption is similar to the previous studies (Dan et al. 2014) and
has been widely adopted in the related research. Without loss of generality, let Ci (i = m, r )
represents other cost of manufacturer m and e-retailer r . Based on the assumptions above,
we now can get the general form of the profits of manufacturer m and e-retailer r as below:

1
m = ps Ds + w Dr − H − ηss2 − Cm (6)
2
1
r = ( pr − w) Dr − ηsr2 − Cr (7)
2

In the rest of this paper, we analyze the equilibrium in the two stages of this game by
solving a two-stage dynamic game model. Utilizing backward induction, first we analyze the
e-retail price strategies of each player and derive the optimal initial wholesale price quoted
by manufacturer m in the first stage. We build a pay-off matrix to analyze the actions and
the bargaining strategies of manufacturer m and e-retailer r in stage two. In this paper, we
consider two main factors in the analysis: the service quality and the commission charged by
the self-organization e-platform.

4 Equilibrium analysis of initial wholesale price strategy

In this section, we analyze the e-retail price strategies and derive the initial wholesale price in
stage 1 in this game. First, we derive the profit functions of the players. The e-retail price of
the products sold on e-platform s is set by manufacturer m, so, the payoffs of manufacturer m,
which should be maximized, consists of two parts: the wholesaling revenue from e-retailer
r and the e-retail revenue from e-platform s. But for e-retailer r , the whole payoffs are
derived from its online retailing. Plugging these factors into the payoff functions, we derive
the profit functions of manufacturer m and e-retailer r . Manufacturer m makes its decision to
realize max m , and e-retailer r makes its decision to realize max r . The first-order partial
derivatives of m are taken with respect to ps , and the first-order  partial derivatives
 of r
∂ ∂
are taken with respect to pr . Let the derivatives be zero, i.e., ∂ psm = 0 and ∂ prr = 0. We
can obtain two reaction functions by solving the equation set and because the symmetry of
the result, we take the example when ss < sr :

3ss 2sr ss (sr − ss )

ps = w+ h+ (8)
4sr − ss 4sr − ss 4sr − ss
ss + 2sr sr 2sr (sr − ss )
pr = w+ h+ (9)
4sr − ss 4sr − ss 4sr − ss

After solving the partial derivatives, the influence of the fixed part of commission on the
pricing strategy has turned out to be zero, so Scenario 3 can be merged into Scenario 1 and
Scenario 2 can be merged into Scenario 4 in the analysis. In the rest of our paper, we analyze
the initial wholesale price in two cases: fixed commission and variable commission.

123
Ann Oper Res (2018) 270:179–200 187

4.1 Case 1: Fixed commission

In this case, the commission is a constant value, h = 0. Now that h = 0, we can get that,
manufacturer m needs to pay a fixed commission to platform s. That is, the revenue share
between manufacturer m and e-platform s is fixable. In order to obtain maximal payoff,
plugging these factors into the payoff functions, we get the relationship between ps and pr
as:
ss + 2sr sr − ss
pr = ps + (10)
3ss 3
Because si (i = s, r ) is distributed in interval [0, +∞), so the coefficient of this
function, ss +2sr
3 , is greater than 0, which indicates that, when manufacturer m raises retail
price of e-platform s, e-retailer r would follow the same path and vice versa.
+2sr
Set β1 = ss 3s s
and β2 = sr −s
3 , we can analyze in three situations, ss > sr , ss = sr
s

and ss < sr . When ss > sr , β1 is less than 1 and β2 is less than 0, which means, pr < ps ;
When ss = sr , β1 equals to 1 and β2 equals to 0, which means, pr = ps = w0 , if e-retailer r
operates in this circumstance, the payoffs of e-retailer r will turn into zero, and manufacturer
m will sell products at wholesale price on e-platform s; When ss < sr , β1 is greater than 1
and β2 is greater than 0, which means, pr > ps .
Proposition 1 When the commission between manufacturer and e-platform is fixed , in stage
1, the retail prices change in the same direction. A higher service quality corresponds to a
higher retail price, in the meantime, manufacturer m and e-retailer r would not adopt the
same price strategy, especially for e-retailer r .
From the above analysis we can see that, when the commission is fixed, the product
price of the online retail channel is only related to the service quality of e-platforms. It is
reasonable that a higher service quality corresponds to a higher e-retail price. Therefore,
if the service quality provided by e-platform s is higher, manufacturer m can set a higher
e-retail price, and vice versa. Meanwhile, it is negative for e-retailer r to compete on price.
When e-retailer r reduces the e-retail price, manufacturer m is bound to reduce its e-retail
price on e-platform s until e-retailer r reduces its e-retail price to the wholesale price, at this
moment, the profits of e-retailer r become zero while manufacturer m can still obtain profits.
Moreover, the wholesale price and the e-retail prices of the two online channels change in
the same direction, that is, when the wholesale price increases, both e-retail prices will also
increase. The demands of e-platform s and e-platform r when sr > ss can be written as
Dr = 2Ds , which means the demands of e-platform r are always double that of e-platform
s when the commission is fixed.
Substitute the equations of price into the profit functions, we can derive the optimal initial
wholesale price for manufacturer m in stage one under fixed commission as follows:
8sr2 + ss2
w0∗ = , when sr > ss (11)
2 (8sr + ss )
or
sr
w0∗ = , when ss > sr (12)
2
4.2 Case 2: Variable commission

In this case, we discuss the situation that the commission between manufacturer m and
platform s is variable, F = 0, h  = 0, which means that when selling one unit of product,

123
188 Ann Oper Res (2018) 270:179–200

manufacturer m needs to pay h to e-platform s. Due to that the fixed fee just influences
the total profits but has no effect on price which has been proved above, the forth scenario
F  = 0, h  = 0 can also be discussed in this case.
Thus, the relationship between ps , pr and h is then derived as when sr > ss :
3ss sr ss (sr − ss )
ps = pr + h− (13)
ss + 2sr ss + 2sr ss + 2sr
and when sr < ss :
3ss ss ss (sr − ss )
ps = pr + h− (14)
sr + 2ss sr + 2ss sr + 2ss
We use μ1 and μ2 , to represent the coefficients of pr and h respectively, then we can
get that μ1 , μ2 > 0.Examining the relationship among ps , pr and h, we find that, with the
increases in pr and h, the value of ps is also increasing. What’s more, when sr > ss , if we
make ps = pr , then we can get:
2 (sr − ss ) ss (sr − ss )
h̄ = ps + (15)
sr sr
Then we can draw the following conclusion:

Proposition 2 When the commission between manufacturer m and e-platform s is variable,

the e-retail prices of both e-platforms change in the same direction. And if the commission and
the e-retail price satisfy a certain condition when sr > ss , namely, h̄ = 2(srs−s
r
s)
ps + ss (srsr−ss ) ,
the e- retail prices of the two platforms will be equal.

Under the assumption that the commission

  when sr > ss , Dr is not equal to
is variable,
2ss
2Ds in the first stage. D = 4sr −ss w − sr −ss h − sr . Moreover, the value of h influences
1

more on the demands of e-platform s, and the value of w influences more on the demands of
e-platform r .
And the optimal initial wholesale price which is quoted by manufacture m in the first stage
under variable commission is shown as follows:
ss s 2 + 8sr2
w0 = − h+ s , when sr > ss (16)
2 (8sr + ss ) 2 (8sr + ss )
or
sr sr2
w0 = − h , when ss > sr (17)
2 2ss (sr + 8ss )
From these equations we can derive that, the initial wholesale price is not only related
to the service quality, but also influenced by the variable part of the commission. Under
this charging model, the self-organization e-platform (e-platform s) is not just a platform
provider, but participating in the transaction process and has effects on the wholesale price
and e-retail price of both manufacturer m and e-retailer r .

4.3 Initial wholesale pricing strategy comparison

To demonstrate the impact of variable commission and service quality on the initial wholesale
price, we use numerical examples with the instance of the optimal initial wholesale price when
sr > ss and compare the impact of service quality on the initial wholesale price under fixed
commission with the impact under variable commission.

123
Ann Oper Res (2018) 270:179–200 189

0.5
FC
VC

0.4

0.3
w0

variable
0.2
commission
effect

0.1

0
0.1 0.2 0.3 0.4 0.5 0.6
sr

Fig. 3 The impact of sr on w0 where ss = 0.1 and h = 1

0.405
FC
VC

0.395
w0

0.385
variable
commission
effect

0.375

0.365
0 0.2 0.4 0.6 0.8
ss

Fig. 4 The impact of ss on w0 where sr = 0.8 and h = 1

As shown in Fig. 3, the impact of sr on w0 is positive, which means that, with the service
quality improving of e-retailer r , manufacturer m would increase the initial wholesale price
quote under both commission patterns. Comparing Line VC2 with Line FC3 in Fig. 3, we can
obviously see that, the range ability of initial wholesale price under variable commission is
larger. What’s more, the marginal effect of sr under variable commission is much larger than
that under fixed commission. This outcome indicates that, the variable commission magnifies
the impact of e-retailer r ’s service quality on initial wholesale price.
When it comes to the impact of ss on w0 , the results become different. As shown in Fig. 4,
when the commission is fixed, the impact of ss on w0 is negative at first and becomes positive

2 Line VC means the impact curve of the service quality on initial wholesale price under variable commission.
(similarly hereinafter).
3 Line FC means the impact curve of the service quality on initial wholesale price under fixed commission.
(similarly hereinafter).

123
190 Ann Oper Res (2018) 270:179–200

at last and the change range of marginal effect of ss is smaller. But the change range of
marginal effect of ss becomes much larger under variable commission. So we can conclude
that the variable commission also magnifies the change of the service quality impact of the
self-organization e-platform on the initial wholesale price.
From the numerical example, we can also derive that, under this scenario, the initial
wholesale price under variable commission is lower than that under fixed commission, which
means that when the self-organization e-platform adopts the variable commission pattern,
the manufacturer has to reduce the initial wholesale price.

5 Equilibrium analysis of the bargaining game

In the second stage, based on the first quote given by manufacturer m and the bargaining power
of e-retailer r , e-retailer r has the choice to bargain with manufacturer m or not. Because
e-retailer r has good bargaining power and owns the ability to negotiate with manufacturer
m, e-retailer r has an anticipated wholesale price based on its profit function.

5.1 Equilibrium analysis under fixed commission

First, we start the analysis by deriving the payoffs functions of e-retailer r and get the profit
of e-retailer r . In this case, if sr < ss , the profit of e-retailer r is negative, which indicates
that, if e-platform r ’s service quality is less than e-platform s’s, the former will not obtain
a positive profit. That is, if the other-organization e-platform (e-platform r ) wants to earn
positive profits, they must improve their service quality to a high level, at least over the level
of self-organization e-platform (e-platform s). So we can derive:

Lemma 1 To survival in the dual-platform competition and obtain a positive profit, other-
organization e-platform must improve its service quality over the service quality level of
self-organization e-platform.

Lemma 1 can explain the phenomenon that the other-organization e-platform, such as JD
and Amazon et al, do a lot of efforts to promote their service quality. The reason may well be
that, unless they improve their service quality over the level of self-organization e-platform,
other-organization e-platform will not survive the competition.
ηs 2 /2+C
When sr is distributed in interval (ss , +∞) , r is convex and we set  = |sr r −ss | r to
represent the excess unit variable cost. In this case, e-retailer r can only ascertain the wholesale
price level which is corresponding to the minimal profit. In the meantime, e-retailer r can also
confirmits wholesale price acceptance
√ √ zone. When  ≥ 1/4, the wholesale price acceptance
zone is 1 + 2  sr − s 2
s
, +∞ and is shown as the shadow area in Fig. 5.
 When
  < 1/4, the wholesale price acceptance zone  of e-retailer r is
√  √  √  √
0, 1 − 2  sr + s 2
s
and 1 + 2  sr − s s /2, +∞ , and can be described
as the shadow area in Fig. 6.
Now we derive the pay-off matrix of this bargaining game as shown in Fig. 7.
ss ηss2
In this matrix, when sr > ss , πm2 = 4 −F− 2 − Cm ,

123
Ann Oper Res (2018) 270:179–200 191

Fig. 5 The wholesale price

acceptance zone when  ≥ 1/4
Πr

w
(1 + 2 Ω ) s −
r Ω ss / 2

Fig. 6 The wholesale price

Πr
acceptance zone when  < 1/4

w
(1 − 2 Ω ) s +
r Ω ss / 2 (1 + 2 Ω ) s −
r Ω ss / 2

Fig. 7 The pay-off matrix of bargaining game

 2
8sr2 + ss2 ss sr (sr − ss ) 1
πm3 = + − F − ηss2 − Cm
4 (8sr + ss ) (4sr − ss )2 4sr − ss 2
 2 2  
(ss − sr ) 8sr + ss2 4sr (ss − sr ) 8sr2 + ss2
πr3 = − +
(4sr − ss )2 8sr + ss (4sr − ss )2 (8sr + ss )
4sr2 (sr − ss ) 1
+ − ηsr2 − Cr
(4sr − ss ) 2 2
When  ≥ 1/4, if e-retailer r wants to cut down w in bargaining, the e-retail price of
e-retailer r, pr , will decrease and the demands of e-platform r will increase. When the initial

123
192 Ann Oper Res (2018) 270:179–200

wholesale price w0 is out of the acceptance zone of e-retailer r , the profit of e-retailer r is
always negative, and according to the monotony of manufacturer m’s profit function, strategy
‘reject’ strictly dominates strategy ‘accept’ for manufacturer m. And for e-retailer r , the profit
of strategy ‘bargain’ is equal to the profit of strategy ‘not bargain’, so in this case, there is
no strategic Nash equilibrium. When the initial wholesale price w0 is in the acceptance zone
of e-retailer, πr1 < πr3 , so strategy ‘not bargain’ dominates strategy ‘bargain’ for e-retailer r .
So in this case, ‘not bargain’ is e-retailer r ’s optimal strategy.

Proposition 3 When  is large, e-retailer r would choose strategy ‘not bargain’. And the
e-retail prices under this strategy can be set as follows:

ss (10sr − ss )
ps =
2 (8sr + ss )
12sr2 − 2sr ss − ss2
pr =
2 (8sr + ss )

  √<  1/4, √
When there are 
two wholesale
√ 
price
√
acceptance
 zones for e-retailer
ss ss
r, 0, 1 − 2  sr + 2 and 1 + 2  sr − 2 , +∞ . When the initial whole-
  √  √ 
sale price w0 is in interval 0, 1 − 2  sr + s 2
s
, strategy ‘bargain’ strictly dominates
strategy ‘not bargain’ for e-retailer r . If e-retailer r wants to make the deal, it has to cut the
wholesale price to a level which can make πm1 > πm2 , which means manufacturer m would
adopt the strategy ’accept’, or else, if the e-retailer r cuts the wholesale price over this level,
the manufacturer m would reject the bargaining and the profits of e-retailer r will become
zero. We use δ to represent the bargaining level of e-retailer r . So we can get the maximal
bargaining level:
 2
∗
8sr2 + ss2 − ss (8sr + ss ) (4sr (sr − ss − 1) + ss ) (4sr − ss )
δ = (18)
2 (8sr + ss )
Only if δ < δ ∗ , this bargaining game has
a pure Nashequilibrium
√
(bargain,
 accept).When the
√ ss
initial wholesale price w0 is in interval 1 + 2  sr − 2 , +∞ , (not bargain, reject)
is also a pure strategy Nash equilibrium in this case.

Proposition 4 When  is small, there is a pure strategic Nash equilibrium (bargain, accept)
with a bargaining level δ < δ ∗ when the initial wholesale price is at the lower level of the
acceptance zone.

As analyzed above, when the commission is fixed, e-retailer r does not have an optimal
wholesale price level based on its profits. It can only adjust its strategy after manufacturer
m gives its quote. When the initial wholesale price is high, the manufacturer is actually the
leader of the market and may be a dominator of its industry. The manufacturer can always
protect its maximal profit and say no to the e-retailer’s bargaining. In this situation, the e-
retailer has no talking power on the wholesale price. But when the initial wholesale price is
low, e-retailer r has the opportunity to use its bargaining power and the manufacturer will
choose to accept the quote of e-retailer r and lose some profits but protect the market share
of its products. We also can see that, in this case, the self-organization e-platform is just a
platform-provider for the manufacturer. It has no effect on this pricing game and bargaining
game, and just sets a constant commission to keep the e-platform running.

123
Ann Oper Res (2018) 270:179–200 193

5.2 Equilibrium analysis under variable commission

Under variable commission, in the second stage, the e-retailer also needs to decide whether
to bargain or not. If the e-retailer decides to bargain and quote its wholesale price, the
manufacturer should decide to accept it or not. We first give the profit function of e-retailer
r in stage 2. Then we can analyze the strategy of e-retailer r in two scenarios: sr < ss and
sr > ss .
Whensr < ss , r is convex and greater  than zero when the unfixed part of commission

sr +8ss ss (ss −sr )(ηsr2 /2+Cr )
h>h h= sr +2ss sr . This outcome indicates that, under the variable
commission, if the service quality of other-organization e-platform is worse than the service
quality of self-organization e-platform, the e-retailer can only earn a positive profit when the
unfixed part of the commission is at a higher level. We also can see that, in this scenario,
although the profits are pretty low, the e-retailer has the opportunity to earn a positive profit
which is different from the case in Sect. 4. In this scenario, if the self-organization e-platform
reduces the variable part of the commission, the profits of the e-retailer will decrease and
even become negative. So we can derive that, if the service quality of other-organization
e-platform is worse than the service quality of self-organization e-platform, the e-retailer has
no initiative in the online retail market, and is dominated by the self-organization e-platform.
Now we can derive  the wholesale price acceptance zone of e-retailer r when  <
sr ss /(4ss − sr )2 , 0, w and (w̄, +∞), where:
√
sr ss (h − sr + ss ) − (ss − sr ) (4ss − sr ) sr ss 
w=
2 (ss − sr ) ss
√
sr ss (h − sr + ss ) + (ss − sr ) (4ss − sr ) sr ss 
w̄ =
2 (ss − sr ) ss

In the acceptance
  zone, the profit of e-retailer r is positive, and the profit function is
decreasing in 0, w and increasing in (w̄, +∞). When the initial wholesale price w0 is in
interval (w̄, +∞), strategy ‘not bargain’ dominates strategy ‘bargain’ for e-retailer r , so in
this case, the purchase transaction is accomplished at the initial wholesale price w0 .
 According
 to the pay-off matrix in Fig. 7, when the initial wholesale price w0 is in interval
0, w , πr1 > πr3 , which means if the manufacturer accepts the quote given by the e-retailer,
strategy ‘bargain’ dominates strategy ‘not bargain’. To make the strategy (bargain, accept) a
pure strategy Nash equilibrium, i.e., πm1 > πm2 , we need to get the maximal bargaining level
δ∗ :
√
hsr (4ss − sr ) ss (ss − sr )
δ∗ = (19)
ss (ss − sr ) (8ss + sr )

Only if δ < δ ∗ , this bargaining game has a pure strategy Nash equilibrium (bargain,
accept), or else, the manufacturer would reject the wholesale price quote of e-retailer r , and
the pure strategy Nash equilibrium is (not bargain, reject), and the final wholesale price is
w0 .

Proposition 5 When the commission

  is variable, only if the following three conditions are
all satisfied: sr < ss , w0 ∈ 0, w and δ < δ ∗ , the bargaining game has a pure strategy Nash
equilibrium (bargain, accept); or else, the e-retailer will choose the strategy ‘not bargain’.
And the e-retail prices would be set as follows:

123
194 Ann Oper Res (2018) 270:179–200

8ss + 3sr ss
ps = h+
2 (8ss + sr ) 2
sr (4ss + sr ) sr
pr = h+
2ss (8ss + sr ) 2
When sr > ss , r is convex. According to the analysis above, we can expediently derive√the
following conclusions: When w0 is in (w̄, +∞), where w̄ = 2sr (h+sr −ss )+(s r −ss )(4sr −ss ) 
2(sr −ss ) ,
the e-retailer would choose the strategy ‘not bargain’ and accept the initial wholesale price.
8sr +3ss ss (ss −10sr )
And the e-retail prices would be set as follows: ps = 2(8sr +ss ) h − 2(8sr +ss ) and pr =
4sr +ss 12sr2 −2sr ss −ss2
2(8sr +ss ) h + 2(8sr +ss ) .
Now that the e-retailer can get positive profits when its service quality is lower than
the self-organization e-platform, we focus on the question of whether the e-retailer has the
motivation to improve its service quality, and the answer is yes. Because the profit function of
e-retailer r is monotone decreasing with the difference between the service qualities of two
e-platforms under sr < ss , i.e., e-retailer r can obtains a higher profit as long as it narrows
the gap of service quality under this condition. This indicates that the e-retailer has a higher
incentive when its service quality is better than the self-organization e-platform. So when
the commission is variable, the e-retailer still has sufficient reasons to improve its service
quality.
Unlike the price strategy under fixed commission, when the commission is variable, man-
ufacturer m needs to consider the commission while making the e-retail price decision. In the
meantime, the wholesale price is also relative to the variable part of the commission. From
the above analysis we can derive that, the manufacturer needs to balance the relationship
between the other-organization e-platform and self-organization e-platform. In this paper,
we only give the interval of the wholesale price for convenience. Now that the wholesale
price can be expressed as the variable part commission, so the interval of the wholesale
price is also the boundary of the variable part commission, which indicates that, the variable
part commission not only influences the e-retail pricing strategy, but also has effects on the
bargaining strategy.

5.3 E-retail pricing strategy comparison

To demonstrate the impact of variable commission and service quality on the e-retail prices,
we use numerical examples and compare the impact of service quality on each e-retail price
under fixed commission with the impact under variable commission. Without loss of gener-
ality, we choose the e-retail price under ‘not bargain’ strategy for brevity, and adopt the same
market configuration as in Figs. 3 and 4, where sr = 0.8 or ss = 0.1 and h = 1.
We first analyze the impact on e-retail price of self-organization e-platform, which is
set by manufacturer m. As shown in Fig. 8, under fixed commission, the impact of ss on
ps is positive, which means that, with the service quality of self-organization e-platform
improving, manufacturer m would increase its e-retail price but the marginal effects of the
service quality of self-organization e-platform are a bit small, which indicates that, the self-
organization e-platforms service quality has a relatively limited influence on the e-retail price
of the products which is sold on its own e-platform when the commission is fixed. But when
the commission is variable, the effect is a little larger. Comparing Curve VC with Curve FC
in Fig. 8, we can obviously see that, the marginal effect ss on ps is a bit larger under variable
commission. So we can conclude that the variable commission can also magnify the service
quality impact of the self-organization e-platform on the e-retail price of self-organization

123
Ann Oper Res (2018) 270:179–200 195

FC
VC
1

0.8
ps

0.6

variable
0.4 commission
effect

0.2

0
0 0.2 0.4 0.6 0.8
ss

Fig. 8 The impact of ss on ps where sr = 0.8 and h = 1

0.9
FC
0.8 VC

0.6
ps

0.4 variable
commission
effect

0.2

0
0.1 0.3 0.5 0.7 0.9 1
sr

Fig. 9 The impact of sr on ps where ss = 0.1 and h = 1

e-platform at some level. Combined with the analysis of Fig. 4, the effect of self-organization
e-platform’s service quality on the price set by the manufacture (wholesale and e-retail price)
is entirely influenced by the variable commission and the marginal effects are both magnified.
The e-retailer’s service quality, as shown in Fig. 9, almost has no effect on the retail
price of self-organization e-platform when the commission is fixed, and the e-retail price
of self-organization e-platform only changes a little when the e-retailer’s service quality
is promoted. But when the commission is variable, the e-retail price of self-organization
e-platform becomes decreasing as the e-retailer’s service quality improves. This result is
probably because the demands of self-organization e-platform would decline when the e-
retailer’s service quality is increasing. To obtain the maximal total profits, the manufacturer
needs to reduce the e-retail price of self-organization e-platform to promote demands of
self-organization e-platform.
But for the e-retail price of e-retailer r , the improvement of e-platform r ’s service quality
would lead to an increasing effect of e-retailer’s retail price (shown as Fig. 11) and the
improvement of e-platform s’s service quality would lead to a decreasing effect (shown as

123
196 Ann Oper Res (2018) 270:179–200

1
FC
VC

0.8
pr

variable
commission
effect
0.6

0.4
0 0.2 0.4 0.6 0.8
ss

Fig. 10 The impact of ss on pr where sr = 0.8 and h = 1

1.4
FC
VC
1.2

0.8
pr

0.6
variable
commission
0.4 effect

0.2

0
0.1 0.3 0.5 0.7 0.9 1
sr

Fig. 11 The impact of sr on pr where ss = 0.1 and h = 1

Fig. 10). Besides, the variable commission has barely any impact on both increasing effect
and the decreasing effect.
Based on the numerical examples above (Figs. 8, 9, 10, 11), we found that for each e-
platform, the service quality and its e-retail price of products change in the same direction,
which illustrates that if e-platform improves its service quality, the market price of the product
of the same e-platform will all increase. But this trend becomes negative for rival e-platform,
which means that the e-retail price would be reduced if its rival’s e-platform improves its
service quality. Besides, a variable commission will magnify the effect on the e-retail price
of self-organization e-platform and has an inconspicuous effect on the e-retail price of other-
organization e-platform.
We can also derive that, if the commission is variable, the e-retail price of each e-platform
would be much higher, which means that when the self-organization e-platform adopts vari-
able commission pattern, the market prices of the products will all go up.

123
Ann Oper Res (2018) 270:179–200 197

6 Discussion

6.1 Conclusion

In the competition of e-commerce platforms, different operational patterns would lead to

different pricing strategies. It is extremely important for a manufacturer to coordinate the
different operational online retail channels. In this paper, we discuss bargaining and pricing
strategy of the two online retail channels, and we get the conclusions as follows.
First, a fixed commission charged by self-organization e-platform just has an effect on the
total profit of the manufacturer, but a variable commission would influence the wholesale
price for other-organization e-platform and e-retail price of both e-platforms. Our results
demonstrate that, compared with the price under fixed commission, the variable commission
does not only impact the price, but also magnify the effect of service quality to some extent.
In this scenario, the self-organization e-platform can affect the wholesale price and the e-
retail price by adjusting the commission, and it plays an important role in the online retail
channel. If self-organization e-platforms want to participate in the online retail supply chain,
they must adopt the variable commission strategy.
Second, the other-organization e-platform has sufficient motivation to improve its service
quality in both scenarios. This conclusion can be frequently corroborated in the subsistent
online retail. In China, the other-organization e-platforms, such as JingDong, Amazon et.al,
have successively introduced self-building logistic systems, and JingDong also introduces
door to door service, 211 limited-time delivery, 411 ultrafast delivery and so on. Even the
T-mall supermarket, which is an other-organization e-platform and belongs to Alibaba, has
built its own logistic system to provide a better service to customers. These living examples
can prove our findings that the other-organization e-platforms have to improve their service
quality to get the initiative and obtain a better profit.
Third, based on the analysis in this paper, strategy (bargain, reject) would not be adopted
in both scenarios. This result illustrates that the manufacturer would not sell its products
only through the self-organization e-platforms. This kind of phenomena can also be found in
practice. Jackjones, Apple Inc and Sumsung et.al sell their products both through T-mall and
JingDong, and more and more manufacturers begin to adopt duel-online channel strategy.
At last, our analysis suggests that the manufacturer and e-platform can adjust their pric-
ing strategies based on service quality. When other-organization e-platform improves its
service quality, the manufacturer needs to raise the wholesale price and reduce the e-retail
price on self-organization e-platform, and other-organization e-platform needs to raise its e-
retail price. When self-organization e-platform improves its service quality, the manufacturer
should decline its wholesale price at first, and raise wholesale price when the service quality
of self-organization e-platform continuing increases, and subsequently, the e-retail price of
self-organization e-platform will go up. In addition, other-organization e-platform’s e-retail
price will fall down when self-organization e-platform improves its service quality.
Using network and new information technologies, e-platforms create an internet-based
mode of contact between the manufacturer and its consumers, opening up an extensive
customer base, enormous purchasing information and databases (Zha et al. 2015). A recent
study has shown the possibility of using Twitter data for supply chain research (Chae 2015).
However, the data that e-commerce systems collect from the web are less structured but often
contain rich customer opinions and behavioral information (Chen et al. 2012).Combining
with the electronic service quality measurement model and data mining, practitioners can
acquire a range of unstructured data of relative items (such as delivery service, security,

123
198 Ann Oper Res (2018) 270:179–200

processing speed (Yoo and Donthu 2000), User-friendliness (Huang and Benyoucef 2013),
etc.). After data extraction and processing, the practitioners can evaluate the service quality
and implement the dynamic monitoring of the e-platforms’ service quality, and adopt Big
Data analytics in order to better understand their customers or provide them more customized
services (Tan et al. 2015; Dutta and Bose 2015). Supporting by these data, the demands of
each e-platform can be estimated and predicted (Dhar 2013; Hazen et al. 2014; Dubey et al.
2016; Waller and Fawcett 2013), and the manufacturers and e-retailers can also adjust their
pricing strategy and decision making process based on big data implementation (Wamba
et al. 2015).
In this paper, we emphasize the role of e-retail platform, and try to get a glimpse of the
relationship between e-retail pricing, mode of commission and service quality. We believe
that these insights will be useful for managers in such supply chains. However, because no
single model can capture every relevant aspect of an actual scenario, we hope that our paper
can provide a point of view for this topic.

6.2 Limitation and future research

Due to the focus of this paper, although we get some conclusions of pricing and bargaining
strategy under hybrid operational patterns of e-commerce platforms, there are still some other
significant marketing factors that can be explored, such as the rivals of manufacturers and the
interaction among multiple e-platforms. Additionally, it is worthy to investigate the multiple
e-retail channel selection and coordination under single or hybrid operational patterns and
how the self-organization e-platforms interact with the e-retail channel distribution decisions
of manufacturers. At last, in this paper, the demand function is based on the consumer
heterogeneity. However, the influence of demand uncertainty on the pricing and bargaining
strategy of e-retail is another interesting research venue.
Although we demonstrate the relationship between service quality of e-platforms and the
e-retail price under hybrid e-retail operational patterns, these findings need to be supported
by practical data when applied in practice. This application process is also valuable to be
discussed in the future research and practice.

Acknowledgements The authors are grateful to the editors, the associate editor, and the two anonymous
referees for their valuable comments and suggestions, which have significantly helped improve the quality
of this paper. The authors are indebted to Dr. Weimin Zheng and Yue Jiang for their insightful discussions.
This paper is partially supported by Guangdong NSF 2015A030313782, SUSTC Startup Fund Y01236115,
Y01236215, and SUSTC basic research fund (FRG-SUSTC1501A-45).

References
Amrouche, N., & Yan, R. (2015). A manufacturer distribution issue: How to manage an online and a traditional
retailer. Annals of Operations Research. doi:10.1007/s10479-015-1982-6.
Bernstein, F., Song, J. S., & Zheng, X. (2008). Bricks-and-mortar vs. clicks-and-mortar: An equilibrium
analysis. European Journal of Operational Research, 187(3), 671–690.
Cai, G. G., Zhang, Z. G., & Zhang, M. (2009). Game theoretical perspectives on dual-channel supply chain
competition with price discounts and pricing schemes. International Journal of Production Economics,
117(1), 80–96.
Cattani, K., Gilland, W., Heese, H. S., & Swaminathan, J. (2006). Boiling frogs: Pricing strategies for a man-
ufacturer adding a direct channel that competes with the traditional channel. Production and Operations
Management, 15(1), 40.

123
Ann Oper Res (2018) 270:179–200 199

Chae, B. K. (2015). Insights from hashtag# supply chain and twitter analytics: Considering twitter and twitter
data for supply chain practice and research. International Journal of Production Economics, 165, 247–
259.
Chen, C. P., & Zhang, C. Y. (2014). Data-intensive applications, challenges, techniques and technologies: A
survey on big data. Information Sciences, 275, 314–347.
Chen, H., Chiang, R. H., & Storey, V. C. (2012). Business intelligence and analytics: From big data to big
impact. MIS Quarterly, 36(4), 1165–1188.
Chen, Y. C., Fang, S. C., & Wen, U. P. (2013). Pricing policies for substitutable products in a supply chain
with internet and traditional channels. European Journal of Operational Research, 224(3), 542–551.
Chiang, W. Y. K., Chhajed, D., & Hess, J. D. (2003). Direct marketing, indirect profits: A strategic analysis
of dual-channel supply-chain design. Management Science, 49(1), 1–20.
Chu, J., Chintagunta, P. K., & Vilcassim, N. J. (2007). Assessing the economic value of distribution channels:
An application to the personal computer industry. Journal of Marketing Research, 44(1), 29–41.
Dan, B., Qu, Z., Liu, C., Zhang, X., & Zhang, H. (2014). Price and service competition in the supply chain
with both pure play internet and strong bricks-and-mortar retailers. Journal of Applied Research and
Technology, 12(2), 212–222.
Dan, B., Xu, G., & Liu, C. (2012). Pricing policies in a dual-channel supply chain with retail services.
International Journal of Production Economics, 139(1), 312–320.
Desai, V. S. (1992). Marketing-production decisions under independent and integrated channel structure.
Annals of Operations Research, 34(1), 275–306.
Dhar, V. (2013). Data science and prediction. Communications of the ACM, 56(12), 64–73.
Dubey, R., Gunasekaran, A., Childe, S. J., Wamba, S. F., & Papadopoulos, T. (2016). The impact of big
data on world-class sustainable manufacturing. The International Journal of Advanced Manufacturing
Technology, 84(1–4), 631–645.
Dumrongsiri, A., Fan, M., Jain, A., & Moinzadeh, K. (2008). A supply chain model with direct and retail
channels. European Journal of Operational Research, 187(3), 691–718.
Dutta, D., & Bose, I. (2015). Managing a big data project: The case of ramco cements limited. International
Journal of Production Economics, 165, 293–306.
Hazen, B. T., Boone, C. A., Ezell, J. D., & Jones-Farmer, L. A. (2014). Data quality for data science, predictive
analytics, and big data in supply chain management: An introduction to the problem and suggestions for
research and applications. International Journal of Production Economics, 154, 72–80.
Hsieh, C. C., Chang, Y. L., & Wu, C. H. (2014). Competitive pricing and ordering decisions in a multiple-
channel supply chain. International Journal of Production Economics, 154, 156–165.
Hu, W., & Li, Y. (2012). Retail service for mixed retail and e-tail channels. Annals of Operations Research,
192(1), 151–171.
Huang, Z., & Benyoucef, M. (2013). From e-commerce to social commerce: A close look at design features.
Electronic Commerce Research and Applications, 12(4), 246–259.
Ji-fan Ren, S., Fosso Wamba, S., Akter, S., Dubey, R., & Childe, S. J. (2016). Modelling quality dynam-
ics, business value and firm performance in a big data analytics environment. International Journal of
Production Research. doi:10.1080/00207543.2016.1154209.
Ji, G., & Yu, M. (2014). Pricing decisions in dual-channel supply chains with service cooperation under asym-
metric information. In 2014 11th International conference on service systems and service management
(ICSSSM), (pp. 1–6). IEEE.
Kurata, H., Yao, D. Q., & Liu, J. J. (2007). Pricing policies under direct vs. indirect channel competition and
national vs. store brand competition. European Journal of Operational Research, 180(1), 262–281.
Li, H., & Cui, N. F. (2013). Study on pricing scheme decision in dual channel supply chain under bargaining
power. Application Research of Computers, 8, 021.
Lu, Q., & Liu, N. (2013). Pricing games of mixed conventional and e-commerce distribution channels. Com-
puters & Industrial Engineering, 64(1), 122–132.
Mussa, M., & Rosen, S. (1978). Monopoly and product quality. Journal of Economic Theory, 18(2), 301–317.
O’leary, D. E. (2011). The use of social media in the supply chain: Survey and extensions. Intelligent Systems
in Accounting, Finance and Management, 18(2–3), 121–144.
Perrey, J., Spillecke, D., & Umblijs, A. (2013). Smart analytics: How marketing drives short-term and long-term
growth. McKinsey Quarterly. http://refhub.elsevier.com/0925-5273(14)00425-3/sbref75.
Roberts, F. S. (2008). Computer science and decision theory. Annals of Operations Research, 163(1), 209–253.
Rodrłguez, B., & Aydın, G. (2015). Pricing and assortment decisions for a manufacturer selling through dual
channels. European Journal of Operational Research, 242(3), 901–909.
Su, Y., & Geunes, J. (2013). Multi-period price promotions in a single-supplier, multi-retailer supply chain
under asymmetric demand information. Annals of Operations Research, 211(1), 447–472.

123
200 Ann Oper Res (2018) 270:179–200

Tan, K. H., Zhan, Y., Ji, G., Ye, F., & Chang, C. (2015). Harvesting big data to enhance supply chain innovation
capabilities: An analytic infrastructure based on deduction graph. International Journal of Production
Economics, 165, 223–233.
Teece, D. J. (2007). Explicating dynamic capabilities: The nature and microfoundations of (sustainable) enter-
prise performance. Strategic Management Journal, 28(13), 1319–1350.
Tsay, A. A., & Agrawal, N. (2000). Channel dynamics under price and service competition. Manufacturing
& Service Operations Management, 2(4), 372–391.
Tsay, A. A., & Agrawal, N. (2004). Channel conflict and coordination in the e-commerce age. Production and
Operations Management, 13(1), 93–110.
Upasani, A., & Uzsoy, R. (2008). Incorporating manufacturing lead times in joint production-marketing
models: A review and some future directions. Annals of Operations Research, 161(1), 171–188.
Viswanathan, S. (2005). Competing across technology-differentiated channels: The impact of network exter-
nalities and switching costs. Management Science, 51(3), 483–496.
Waller, M. A., & Fawcett, S. E. (2013). Click here for a data scientist: Big data, predictive analytics, and
theory development in the era of a maker movement supply chain. Journal of Business Logistics, 34(4),
249–252.
Wamba, S. F., Akter, S., Edwards, A., Chopin, G., & Gnanzou, D. (2015). How ‘big data’can make big impact:
Findings from a systematic review and a longitudinal case study. International Journal of Production
Economics, 165, 234–246.
Xiao, T., Yu, G., Sheng, Z., & Xia, Y. (2005). Coordination of a supply chain with one-manufacturer and two-
retailers under demand promotion and disruption management decisions. Annals of Operations Research,
135(1), 87–109.
Xiao, T., Choi, T. M., & Cheng, T. (2014). Product variety and channel structure strategy for a retailer-
stackelberg supply chain. European Journal of Operational Research, 233(1), 114–124.
Yan, R. (2008). Pricing strategy for companies with mixed online and traditional retailing distribution markets.
Journal of Product & Brand Management, 17(1), 48–56.
Yoo, B., & Donthu, N. (2000). Developing a scale to measure the perceived quality of an internet shopping
site (pqiss). Developments in Marketing Science, 23, 471–471.
Zha, Y., Zhang, J., Yue, X., & Hua, Z. (2015). Service supply chain coordination with platform effort-induced
demand. Annals of Operations Research, 235(1), 785–806.

123
 Reproduced with permission of copyright owner.
Further reproduction prohibited without permission.