Strategic Choice of Commission Formats in a Supply Chain With a Platform and Competing Manufacturers

Abstract

Recently, an increasing number of platforms have begun to serve as marketplaces, which allow upstream manufacturers to directly connect with consumers. In this prevalent selling mode, a platform commonly charges manufacturers commissions through the revenue-sharing format or fixed-rent format. By building game-theoretical models, this study investigates the performance differences between the two commission formats and explores the optimal commission strategy of the platform facing competing manufacturers. Our results show that compared to the fixed-rent format, the revenue-sharing format, which leads to lower required per-unit commissions, lower prices, and higher demand, can weaken the platform's dominance. In addition, the competition between upstream manufacturers plays a critical role in the choice of the commission format by the platform. Specifically, when the competition intensity is low, as the commission rate increases, the platform's preference evolves from a pure fixed-rent strategy to a hybrid strategy and then to a pure revenue-sharing strategy. As upstream competition intensifies, the platform's preference for the revenue-sharing format begins to wane. That is, when the competition intensity is moderate, a hybrid strategy is preferred by the platform even if the commission rate is sufficiently high. Moreover, when upstream competition is fierce, the platform should adopt the pure fixed-rent strategy, regardless of the commission rate. Furthermore, we also find that the dominant strategy of both manufacturers is to adopt the revenue-sharing format. However, neither of them can achieve the highest profit in the equilibrium outcome. If a manufacturer wants to win the competition, she must make efforts to induce her competitor to adopt the fixed-rent format while maintaining her own dominant commission choice.

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