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Abstract Motivated by the fact that many e‐tailers offer online rebates through cashback websites to attract more consumers, and wield channel leadership, we construct a retailer‐Stackelberg supply chain comprised of one e‐tailer, one manufacturer, and one cashback website. Cashback websites have two commission formats: sharing and fixed. We first explore the online rebate strategy of the e‐tailer (under the two commission formats); and then study the e‐tailer's commission format selection strategy when offering rebates. Our analysis reveals that: (i) the product valuation and fraction of low‐end consumers play key roles in shaping the e‐tailer's online rebate and commission format selection strategies; (ii) the e‐tailer's rebates increase the wholesale price under sharing commission, but decrease it under fixed commission; (iii) the e‐tailer's rebates may be a trap for consumers because they may pay a higher retail price after rebates; (iv) under both commissions, the e‐tailer's rebates hurt the manufacturer, but could enhance supply chain performance; and (v) when offering rebates, low‐end consumers and the manufacturer are better off under sharing commission if its product valuation is sufficiently low, while high‐end consumers are better off under fixed commission. Additionally, the e‐tailer has a stronger incentive to provide rebates when the manufacturer acts as the leader; temporary rebate promotion may lead to a triple win situation for the manufacturer, e‐tailer, and consumers.
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